Peer-to-peer (P2P) lenders were singled out for particular criticism with warnings that they would lose smaller investors’ money and could hurt the reputation of the wider industry.
Speaking at the Connect annual conference about the threats he saw in the future, Octane Capital managing director Mark Posniak said he saw too many new entrants without enough experience in the lending space because there was no barrier to entry.
“They are taking unnecessary risks, trying to buy market share using too high loan-to-value and not understanding the risks – there’s going to be some casualties,” he said.
“I see a new email from a different short-term lender every week saying ‘We’re just launching, we’ll do an 85% LTV’.
“It’s not an 85% LTV market. There’s going to be no take up for those loans in 12-18 months’ time and then they lose money and the investors lose money.
“Of particular concern are the peer-to-peer lenders who don’t have the relevant credit experience; putting money out at the wrong risk, so they are going to lose the investor’s money as well as [their own],” he added.
Posniak later warned brokers to “keep your eyes open” and hoped for “sensible trading” across the market when the challenges arrived.
Pressure on new lenders
These fears were echoed by other speakers on the panel debate who noted that following the typical financial cycle, another recession was due.
Precise Mortgages sales director Roger Morris (pictured) warned that while there would be opportunity for brokers to help clients, there was some negativity on the lender front.
“A lot of new entrant lenders are going to feel the pressure on swap rates,” he said.
“There’s going to be pressure on them to price up, liquidity could well disappear and there are lenders in the market who unfortunately will die off.
“It’s very similar to the 2007 cycle – we are going to see a reduction in property prices in the south east, interest coverage ratio (ICR) calculations will fail against the expected 2% change in base rate.”
He added: “The opportunity is in your hands for the next few years and for lenders that have got the right controls in place to be able to find their way through the problems and challenges ahead.”