Analysis: P2P lenders are not blocked by hedges


The proposed changes to EU rules on hedging instruments could mean fixed-rate mortgages cease from small lenders.

The reason is that most lenders have to hedge interest rate exposure to ensure they can fix funding costs to match the fixed-rate income of the mortgage. The proposed changes will make it hard and expensive for smaller lenders, including building societies.

This will not affect us as a broker-focused P2P lender in the buy-to-let market. We are not a bank: we help customers who want to lend through the P2P platform. No hedging is required because the loan and mortgage match each other in duration and rate.

We are not constrained by type of rate. The market tends to be based on an SVR, a fixed rate or a base rate- or Libor-linked loan. 

Banks and building societies were caught out in the credit crisis when they had big mismatches between the unhedged base rate mortgages when the cost of funds was centred on Libor. 

Take an RPI tracker: if there was demand from both our funders and borrowers, it would be feasible. 

P2P lenders can also use all their funding for their lending activities. No bank or building society can do this.