Peer-to-Peer Lending in 2026: Is It Still Worth Considering?

Peer-to-peer (P2P) lending arrived in the UK with considerable promise: cut out the banks, lend directly to creditworthy individuals and businesses, and earn significantly higher interest rates than cash deposits could offer. For a period, it delivered on that promise. Then reality intervened.

The COVID-19 pandemic, followed by a severe contraction in the platform market and stricter FCA regulation, fundamentally changed the P2P landscape. What remains is smaller, more specialised, and better regulated — but the risks have not gone away. This guide provides an honest assessment of where P2P lending stands in 2026, what the real risks are, and how to evaluate it as part of a broader income strategy.

The Rise and Contraction of UK P2P

The UK P2P market pioneered the concept. Zopa, founded in 2005, was the world's first P2P lending platform. Funding Circle (launched 2010) built one of the world's largest small business lending platforms. RateSetter (founded 2009, launched 2010) introduced the "Provision Fund" model — a pool of money to cover borrower defaults, which created a perception of protection that it could not always deliver.

The market grew rapidly through the 2010s. At its peak in 2018–2019, the outstanding UK retail P2P loan book exceeded £6 billion. Returns of 5–8% in a near-zero interest rate environment were highly attractive to yield-hungry investors. The FCA authorised P2P platforms from April 2014, bringing regulatory legitimacy.

Then came the unravelling. COVID-19 triggered a surge in loan defaults across consumer and business lending. More critically, it triggered a wave of investor redemption requests — and many P2P platforms could not honour them quickly, because the underlying loans were illiquid assets. Secondary markets for loan trading either froze or were suspended. Investors who thought they had near-liquid investments discovered they could not exit.

Several major platforms did not survive:

• RateSetter sold to Metro Bank in 2020 for a nominal sum and closed its retail P2P platform
• Lending Works exited retail P2P
• Funding Circle restructured its retail offer, ultimately moving to an institutional lending model and exiting the retail P2P market entirely

The FCA responded with tighter rules: the requirement for platforms to assess investor appropriateness more rigorously, restrictions on marketing to retail investors without experience of loss, and enhanced wind-down planning requirements.

The Current UK P2P Platform Landscape (2026)

The surviving platforms as of 2026 tend to share certain characteristics: they focus on property-backed lending (tangible collateral provides more recovery value than unsecured consumer loans in default), they have clearer underwriting standards, and they have more realistic liquidity terms.

Key platforms currently operating:

Assetz Capital. One of the UK's longest-established P2P platforms, focused primarily on property development loans and commercial mortgages. Investor funds are spread across multiple loans, and the platform maintains several access accounts with different liquidity profiles. The manual lending option allows experienced investors to select individual loans.

Folk2Folk. A specialist lender focused on rural and agricultural asset-backed lending. Loans are secured against farmland, rural property, and agricultural businesses. The platform serves a niche but defensible market segment.

CrowdProperty. Property development bridging and development loans. Short-term in nature (typically 12–24 months), first-charge security over development projects.

Shojin. Focuses on property development and income-generating property investments, targeting returns of 8–16% depending on the risk profile of the underlying project.

The common theme: property-backed lending has replaced the earlier consumer and general SME unsecured lending that proved so vulnerable in 2020.

The Innovative Finance ISA (IFISA)

The Innovative Finance ISA was introduced in 2016 to extend the ISA wrapper — and its tax-free income treatment — to P2P lending and other innovative finance products.

The mechanics: investors can allocate some or all of their annual ISA allowance (£20,000 in 2026) to an IFISA. Interest income received from P2P loans within the IFISA is free of income tax. For a higher-rate taxpayer earning 8% gross on a P2P portfolio, avoiding 40% income tax on the interest income makes a material difference to net returns.

However, the IFISA has a critically important distinction from other ISA types: P2P lending is NOT covered by the Financial Services Compensation Scheme (FSCS). A Cash ISA with a UK bank is FSCS-protected up to £85,000 per institution — if the bank fails, you get your money back (up to the limit). An IFISA is not FSCS-protected. If borrowers default, you lose the corresponding portion of your investment. If the platform itself fails, a wind-down plan takes effect — but your capital is not guaranteed.

This matters enormously for investors who assume that because an investment is inside an ISA wrapper it is protected. It is not. The ISA wrapper provides tax protection; the FSCS provides capital protection (for eligible products only).

Risk Framework for P2P Assessment

Evaluating a P2P platform requires assessing multiple layers of risk:

Borrower credit risk. The most fundamental risk: the borrower defaults and cannot repay. Key questions:

• What is the loan-to-value (LTV) ratio for property-backed loans? Below 70% LTV provides meaningful headroom — the property would need to decline significantly in value to impair the loan.
• What is the platform's historical default rate and actual investor loss rate? Most reputable platforms publish this data.
• Does the platform have a Provision Fund? And is the fund adequately sized relative to the loan book (a 2% provision fund covering a 5% default rate is not enough)?

Platform operational risk. If the lending platform ceases to operate, what happens?

• FCA authorised P2P platforms are required to have a wind-down plan specifying how existing loans will be administered until maturity in the event of the platform closing.
• The wind-down plan is not the same as getting your money back quickly — it means loans will continue to be managed by a third-party administrator until they mature or are sold.
• The quality of wind-down arrangements varies significantly between platforms.

Liquidity risk. P2P loans are illiquid. While many platforms operate secondary markets allowing investors to sell loan parts to other investors, these markets can freeze when sentiment turns negative — precisely when you most want to exit. The experience of 2020 demonstrated that "secondary market" liquidity should be treated as uncertain, not guaranteed.

Concentration risk. A P2P portfolio of £50,000 across 20 loans averages £2,500 per loan. A single default on a £2,500 loan costs you £2,500 — 5% of the portfolio. Some property development loans are for £500,000 or more; a retail investor's allocation to a single loan could represent their entire IFISA balance. True loan diversification requires access to a platform that spreads exposure automatically across many small loans.

Return Expectations and the Risk-Adjusted Question

Current indicative gross returns from UK property P2P platforms (as of 2026) range from approximately 7–12%, depending on the loan type and risk tier:

• Senior first-charge property lending: 7–9% gross
• Second-charge or development lending: 9–12% gross

These gross yields look attractive in a context where the UK base rate has eased to 3.75% (as of June 2026) and investment grade corporate bonds yield 4.5–6%.

However, the net yield after accounting for:

• Expected defaults (even on property-backed loans, development projects can run into difficulties)
• Platform fees (typically 0.5–2% per annum depending on the model)
• The time loans are uninvested (cash drag while the platform deploys capital)

...is materially lower. Realistic net returns for a well-diversified property P2P portfolio might be 5–8%.

The central risk-adjusted question: is 5–8% net from P2P — with illiquidity, no FSCS protection, and platform risk — better compensation than 5–6% from investment grade corporate bonds in a UCITS fund (FSCS-protected platform, daily liquidity, transparent NAV) or 6–8% from high-yield bonds with similar credit risk exposure?

The answer depends on the investor's liquidity needs, tax position (IFISA is beneficial for higher-rate taxpayers), risk tolerance, and portfolio context.

The Role of P2P in a Broader Income Portfolio

For a sophisticated income investor, P2P can play a modest diversifying role within an alternatives allocation:

• Allocation: 5–10% of income-oriented portfolio at most
• Structure: exclusively via IFISA to shelter the interest from income tax
• Platform selection: FCA-authorised platforms with property-secured loans, demonstrated track record, published default data, and adequate wind-down arrangements
• Diversification: use auto-invest features that spread capital across many loans, not concentrated in single large loans
• Liquidity expectations: treat P2P as an illiquid allocation; do not rely on secondary market exit

P2P should not replace cash savings (which benefit from FSCS protection), bonds (which provide portfolio diversification and liquidity), or other income-generating alternatives. It is a supplement, not a substitute.

How Global Investments Can Help

The P2P lending market has matured and contracted significantly from its peak. For investors considering a P2P allocation, careful platform selection, realistic risk assessment, and IFISA structuring are essential.

At Global Investments, we help clients evaluate alternative income strategies, including P2P lending, within the context of their broader portfolio and tax position. We do not recommend P2P as a core allocation but can assist in assessing whether a modest IFISA allocation to property-backed P2P lending is appropriate for clients with the relevant risk appetite and financial profile.

Capital is at risk. P2P lending is not covered by the FSCS. Your capital and returns are not guaranteed. Interest rates and returns described are illustrative and based on information available as of June 2026 — they will change. Seek independent financial advice before investing in P2P lending products. Rules and regulations may change.