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Peer-to-peer lending via the internet hits £250m | Peer-to-peer lending via the internet hits £250m |
(about 1 hour later) | |
By Simon Gompertz Personal finance correspondent, BBC News | By Simon Gompertz Personal finance correspondent, BBC News |
Lending via three websites that link savers with borrowers - bypassing the banking system - has topped £250m. | |
The "new age" finance carries no protection for deposits, but is being tipped as a serious threat to traditional banks. | |
The peer-to-peer sites are led by Zopa, which has lent more than £200m since it started in 2005. | |
Funding Circle, specialising in business loans, has topped £34m, and RateSetter has reached £24m. | |
Last month the government said it would lend these sort of firms £100m to help expand their own lending to businesses. | Last month the government said it would lend these sort of firms £100m to help expand their own lending to businesses. |
"It's a marketplace, the eBay for money," says Lynne Martin from Hertfordshire, a foot technician in her late 50s who has been using Zopa to build up a nest egg for retirement. | "It's a marketplace, the eBay for money," says Lynne Martin from Hertfordshire, a foot technician in her late 50s who has been using Zopa to build up a nest egg for retirement. |
Higher returns | Higher returns |
Lynne was fed up with the returns she was getting from banks and pension plans. | Lynne was fed up with the returns she was getting from banks and pension plans. |
So she has lent a substantial part of her savings via the website, spreading it between hundreds of borrowers and by-passing the banking system. | So she has lent a substantial part of her savings via the website, spreading it between hundreds of borrowers and by-passing the banking system. |
The interest from the latest £5,000 is 7.4% a year before tax but after taking into account Zopa's 1% charge. | The interest from the latest £5,000 is 7.4% a year before tax but after taking into account Zopa's 1% charge. |
That is substantially more than is available on a typical savings account at a bank. | That is substantially more than is available on a typical savings account at a bank. |
On the other side of the ledger, Jamie Hirst from Chippenham in Wiltshire has borrowed £4,500 through Zopa to cover the cost of a revamp of his kitchen and bathroom. | On the other side of the ledger, Jamie Hirst from Chippenham in Wiltshire has borrowed £4,500 through Zopa to cover the cost of a revamp of his kitchen and bathroom. |
The 8.4% APR he is paying is 5% less than he was quoted by his bank. | The 8.4% APR he is paying is 5% less than he was quoted by his bank. |
"I thought it was brilliant," he told the BBC's Your Money. | "I thought it was brilliant," he told the BBC's Your Money. |
"The fact that there wasn't some fat cat taking the profits, just some guy investing 50 or a hundred quid to get a little return and doing something good for someone else." | "The fact that there wasn't some fat cat taking the profits, just some guy investing 50 or a hundred quid to get a little return and doing something good for someone else." |
The drawbacks | The drawbacks |
There is a significant drawback for savers: the lack of any guarantee that you will get your money back. | There is a significant drawback for savers: the lack of any guarantee that you will get your money back. |
Peer-to-peer lending, as it is known, does not qualify for protection from the Financial Services Compensation Scheme (FSCS), which provides security up to £85,000 per bank, for each saver. | Peer-to-peer lending, as it is known, does not qualify for protection from the Financial Services Compensation Scheme (FSCS), which provides security up to £85,000 per bank, for each saver. |
The peer-to-peer sites put their loan applicants through credit checks and Zopa says it divides people's savings into £10 chunks which are spread between borrowers, to minimise any risk. | The peer-to-peer sites put their loan applicants through credit checks and Zopa says it divides people's savings into £10 chunks which are spread between borrowers, to minimise any risk. |
On average, so far, its lenders have lost 0.5% of their money as a result of borrowers defaulting. | On average, so far, its lenders have lost 0.5% of their money as a result of borrowers defaulting. |
But Lynne Martin predicts the concept is bound to catch on more widely. | But Lynne Martin predicts the concept is bound to catch on more widely. |
"Necessity is the mother of invention," she says. | "Necessity is the mother of invention," she says. |
"This is a new asset class. It's not a share and it's not a bank account." | "This is a new asset class. It's not a share and it's not a bank account." |
Official support? | Official support? |
Lynne has support from a director of the Bank of England, Andy Haldane, who suggested in March that peer-to-peer lenders could replace High Street banks. | Lynne has support from a director of the Bank of England, Andy Haldane, who suggested in March that peer-to-peer lenders could replace High Street banks. |
"There is no reason why end-savers and end-investors cannot connect directly," he explained. | "There is no reason why end-savers and end-investors cannot connect directly," he explained. |
"The banking middle men may in time become the surplus links in the chain." | "The banking middle men may in time become the surplus links in the chain." |
Lynne is hoping the interest she is earning will help pay for her to retire to the West Country, a hope which highlights an interesting feature of peer-to-peer lending. | Lynne is hoping the interest she is earning will help pay for her to retire to the West Country, a hope which highlights an interesting feature of peer-to-peer lending. |
Much of the money has been moving across generations, from older people looking for a decent income to younger borrowers setting up in life and desperate to keep down the cost of taking a loan. | Much of the money has been moving across generations, from older people looking for a decent income to younger borrowers setting up in life and desperate to keep down the cost of taking a loan. |