Will “problem debt” regions have a knock-on effect in P2P lending?

Zopa is active in some regions where

"problem debt" is, well, a problem. But its loanbook is well-diversified, spanning hundreds of locations across the UK. 

Recent data from the Money Advice Service highlighted ten areas in Britain where more than 20% of inhabitants are saddled with “problem debt”. These over-indebted individuals are defined as those who find meeting monthly bills extremely difficult, or who miss at least three bill payments in a six-month period.

These regions – and the percentage of their inhabitants in “problem debt” – are listed below:

• Newham, East London: 22.7%
• Tower Hamlets, East London: 22.7%
• Sandwell, West Midlands
• Nottingham: 21.9%
• Barking and Dagenham, East London: 21.8%
• Blaenau Gwent, South Wales: 21.6%
• Hull: 21.5%
• Manchester: 21.5%
• Leicester: 21%
• Hackney: 20.9%

Do these revelations have any bearing on the UK’s P2P consumer lenders? Using AltFi Data, we’re able to pinpoint which parts of the country have proven the most lucrative sources of loan origination for Zopa, the world’s original peer-to-peer lending platform. It is not possible to do this for RateSetter, the UK's other big P2P consumer lender.

There is some overlap between the “problem debt” list and Zopa’s top 10 regions by cumulative lending volume. Leicester, where 21% of inhabitants are heavily burdened by debt, has produced c. £38m of Zopa loans to date – ranking as the platform’s fourth richest vein of loan origination. Nottingham, Zopa’s tenth most productive region with £34.5m in total lending, is the other point of crossover. The Money Advice Service numbers show that 21.9% of Nottingham inhabitants are in “problem debt”.

Zopa’s top three regions for loan origination are Belfast (£53m), Newcastle (£45m) and Bristol (£41m). London would top the list were it not split out into multiple regions. 

Zopa has made a series of adjustments to its projections and credit criteria in recent months – primarily driven by a worsening outlook for consumer credit in the UK.

In August, the peer-to-peer lender revealed it was expecting higher losses on some of its existing loans, and lowered its return expectations for non-Safeguarded loans. Its chief product officer Andrew Lawson wrote to investors warning that consumer default and insolvency levels had grown closer to historic norms prior to 2010, up from the historically low levels of bad debt seen over the past seven years.

The Bank of England recently warned, in its credit conditions survey, of significantly increased default rates on credit cards and other types of unsecured lending in the second quarter of this year.

A downturn in consumer credit conditions is likely to be felt more acutely in some UK towns than in others. Those currently exhibiting high levels of “problem debt” may be especially vulnerable. 

Zopa’s loanbook is well-diversified, spanning 268 regions in the UK. Its top 10 most productive regions by loan origination account for £391m of lending, while the platform has originated a grand total of over £2.6bn in consumer loans to date.

“We lend to low risk borrowers across the length and breadth of the UK, provided they meet our strict lending criteria,” said a Zopa spokesperson. “The fact that the top 10 top areas which we lend to account for only 15% of our total lending volume over the last 12 years shows how well diversified our loanbook is across the UK.”