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The Assetz Capital platform is no longer open to investment from individual investors. No new investments into peer-to-peer loans are possible and, as a result, no new funds should be deposited. The existing loan book relating to the Retail platform is now in run-off and this will, over time, deliver the return of capital to investors. Full information can be found here . Existing Retail lenders can still log in, view information regarding their account and loan holdings and operate their account in accordance with the information regarding the run-off provided on the link above. Please see this important message regarding the currency of the information on the pages on this website.

How to BrexitProof your business & investments

How to BrexitProof your business & investments

BrexitProof for investors

Simulated Bank of England stress tests are implemented to demonstrate that the big UK banks could survive even the worst-case scenario recession. This means that the banks are very likely to be resilient enough to withstand the Brexit repercussions and the Governor has suggested that likely Brexit risks fall far short of the extreme conditions those stress tests were designed for. However, investors need to be aware that this will come at a cost.  Banks will more than likely be required to lower savings rates in order to maintain a sustainable model during the Brexit transition, following Bank Base Rate downwards and meaning it's savers who will lose out.

P2P investing is thought to be less geared to external factors and the undulating confidence which we will continue to experience during the Brexit transition period. Using the same stress testing methodology as used by the banks, our own business has demonstrated that it should also weather the worst-case Bank of England recession forecasts, whilst at the same time avoiding the drastic lowering of rates that would otherwise hit investors. The main reason for this relative stability is that relatively low overhead; Peer-to-Peer lending is able to offer a higher gross interest rate on a Peer-toPeer loan to an investor than a saver would receive from a bank savings account, whilst still offering borrowers loans at a time when banks want to slow their lending and hence also perhaps allowing higher borrower rates. Recessions can effectively increase Peer-to-Peer margins, which benefits investors with higher gross rates whilst also potentially covering any increase in expected losses.  Peer-to-Peer loan interest rates are often fixed rate and that may be attractive with talk of even lower bank savings rates.

There are a number of other BrexitProof options out there.  For instance non-cyclical investments such as renewable energy available from P2P and other alternative investment providers are expected to behave in a stable manner.  Also loans which have been secured against hard assets such as property with modest loan-to-value ratios are far more BrexitProof than unsecured loans, even if default rates rise.

Buy to let, as we experienced in the last recession, saw rents rise quickly when house building stopped. This could happen again, however possibly less so this time as P2P may keep on funding safer housing projects with strong rental demand as well as a good sales exit – provided banks carry on providing homebuyer or Buy-to-Let mortgages. Given housing underpins the banking system it is likely that the Bank of England and others will again do everything they can to keep house prices stable and that means homebuyer mortgages at least will need to keep flowing. Cash rich Buy-to-Let investors are likely to focus on yield again as London house prices reverse for a while and the potential for speculative house price growth becomes uncertain.

Businesses that export substantial parts of their production may also do well and could outperform the wider stock market and vice versa; many importers could fare badly.

2. BrexitProof for businesses

For businesses in need of short and long term loans, there are also some BrexitProof options for them to consider.

Fixed rate loans offer businesses a stable way to predict part of their finances regardless of external market conditions. Brexit may put pressure on banks to reduce loan availability, but many alternative finance providers, and particularly Peer-to-Peer lenders like Assetz Capital, will continue to offer fixed rate loans as they currently do as their source of capital, retail investors, look to lock in good lending rates in a falling interest rate environment.

Generally speaking, loans can be much safer for a business than overdrafts because banks can’t withdraw them on short notice and the large scale reduction in overdraft facilities is likely to continue even faster now, driving more businesses to consider business loans to provide them more stability at a potentially lower cost. Peer-to-Peer firms have been replacing expensive overdrafts for some time and this is expected to continue.

What is not BrexitProof?

Whilst some financial products, services and institutions have the ability to be made BrexitProof, many cannot and will need to ride out the turmoil.

Unfortunately, any product or business exposed to recession or weak currency is at risk and seriously needs to address new business models in order to minimise their exposure to the Brexit uncertainty. 

In addition, the BoE has claimed that smaller challenger banks and building societies are more vulnerable to Brexit due to the number of more risky loans they have on their books. Perhaps this means that depositors will consider moving elsewhere given the rates on offer and those lenders may then have to reduce their lending books? We will have to wait and see.

In the short time since the Leave vote, it has become apparent that any portfolio including shares with a high UK exposure will struggle to maintain stability. This also includes the investment trusts that are focused on mid-cap UK companies - as a majority of them are too exposed to the vulnerability of the current UK economy.

Finally, it’s hard to ignore the impact Brexit is having on the London prime property market. While it was in decline in the months leading up to the referendum, a sudden surge after it has proven many correct – that it’s a risky investment at the moment given the sudden fall in inward investment, and no one is quite sure of the longer-term implications. Given the location’s rise in prices that was quite detached from the rest of the country, we expect its fall to be somewhat detached also.

Conclusion.

At face value, the Brexit result has the potential to put our financial services industry into free-fall with commercial property funds closing for redemptions and banks battening down the hatches and cutting back lending quickly this time whilst at the same time slashing savings rates.  However, the alternative finance market has matured and grown since the last financial downturn. We will now see for the first time if Peer-to-Peer lending can help fill some of the gaps left by banks retreating in a recession and help the country to avoid the worst effects seen last time around. Firstly this will be by offering Peer-to-Peer lenders higher rates than they could achieve from bank savings accounts, provided they understand the risks, and secondly by still offering loans to credit-worthy businesses and managing defaults well. The critics and backers of Peer-to-Peer are about to have their respective theories tested!

- July 28, 2016

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