P2P lender Zopa has moved to reduce the amount of lending it does with higher risk, higher return graded loans, in order to protect itself from what it sees as deteriorating credit conditions.

The lender said between 2010 and 2016, the UK saw continually improving consumer credit conditions and low levels of bad debt.

Since the start of the year, however Zopa said it saw some early signs of a change to this trend. Specifically it said:

  • “Publicly available data suggests consumer default and insolvency levels are reaching levels which are more consistent with historic norms prior to 2010; and
  • The Bank of England in their credit conditions survey stated “Lenders reported that default rates on both credit cards and other unsecured lending to households were reported to have increased significantly in Q2 [of 2017].”

Since the start of 2016 Zopa said it had become more cautious in its lending criteria, but more recently it has reduced the amount of lending in our higher risk, higher return D-E markets (which are included in the Plus product).

It has also taken steps to attract more lower risk customers.

The news comes just days after subprime secured motor finance provider Moneyway revealed it was moving away from the subprime.

Changes to investments

In Zopa’s ‘Plus’ account, D and E graded loans have traditionally made up 30% of investments, but following the change, these will now only represent 10-15% of the portfolio.

The P2P lender has noted that its grade D and E loans would still typically be considered ‘prime’, and that it does not lend in the subprime or near prime markets.

Zopa said as a result of the move, customers should expect lower returns from its Plus and Core products of 4.5% and 3.7%, respectively.

Zopa said it had noted two trends. One of these is ‘slightly higher’ losses. The second of which is an increase in the number of early repayments from borrowers.