BoE rate hike: P2P chiefs urge diversification

The Bank of England today raised interest rates by 0.75 percentage points to three per cent – ​​the largest increase in 30 years.

The move is bad news for those looking to take out a mortgage or remortgage an existing home loan, and is predicted to send property prices down by 10 per cent next year, according to Savills.

High inflation, rising inflation rates and economic uncertainty mean that those with sufficient savings should look to diversify their investments, according to peer-to-peer lending bosses.

Read more: Lenders predict higher defaults and kidney in consumer credit

“At a time of serious economic volatility, when we sit on the brink of recession, diversification has never been more important in financial planning,” said Stuart Law, chief executive of Assetz Capital.

“While inflation and interest rates are peaking right now, we expect that consumer demand will fall into 2023 as household budgets continue to tighten, especially if, as expected, we enter into a new era marked by spending cuts and tax rises on November 17. This will slow inflation and rates will stabilize or even fall back as the Bank of England shifts its monetary policy focus to promoting economic growth.

Read more: How to address inflation with your P2P portfolio

“Amidst an uncertain economic future and high inflation, diversification is key. That might well now include a savings component given where rates are, but should also consider higher interest rate investment opportunities, especially where these can offer investment in diversified portfolios to spread risk, and which favor real assets that are less volatile than the stock market movements .”

Law noted continued demand from housebuilders for funding and said that investing in a portfolio of housebuilder loans was one option to secure a competitive return.

Read more: “I can’t think of a better investment”

Jatin Ondhia, chief executive of Shojin, agreed that now is the time for investors to diversify, given the cooling of the property market.

“As the cost of borrowing climbs sharply, people’s chances of getting onto or moving up the property ladder will diminish, while traditional property investments, like buy-to-lets, will likely become less attractive,” he said. “We could see people pursue alternate forms of real estate investment, including fractional investment into developments.

“I would expect investors to consider the assets and markets they are backing right now, with diversification a logical route for many during times of high inflation and rising interest rates. Alternative investments could become more popular, with investors potentially seeking to balance higher-risk options that could better keep pace with inflation at the same time as still gravitating towards safe haven assets.”

Recent research from Peer2Peer Finance News found that P2P lending is standing out amongst alternative investments as it offers more transparency, taps a growing market and sets to benefit from higher interest rates.

The P2P lending market is expected to grow to $1.14trn (£1trn) by 2031 globally, according to Transparency Market Research.

Furthermore, research from Peer2Peer Finance News earlier this year found that Innovative Finance ISAs (IFISAs) returned an average of 9.01 per cent over 2021, and outperformed the UK stock market over the four years from 2018 to 2021.