What does 2025 have in store for the property lending market?

2024 was not without its surprises – a new UK government, ongoing geo-political tensions across the world, and the end of an era of stubbornly high base rates. Yet throughout the year, the peer-to-peer property lending sector remained relatively robust. In fact, 4th Way published research this year showing that P2P returns have outpaced the stock market over the past decade, with annualised returns after costs of 7.36 per cent per annum, compared with 4.9 per cent per annum for the stock market.

Despite macro-economic volatility and the difficult lending environment, platforms like Loanpad continued to grow their loan books and attract more investors, proving the resilience of P2P property lending. Loanpad passed its £100m lending milestone while maintaining its zero loss record, further demonstrating the growth potential of P2P even during tough years.  

While no one knows what 2025 has in store, a few key trends are already emerging that give us an idea of what we can expect in the year ahead…  

1. Increased IFISA uptake

The Innovative Finance ISA (IFISA) is now a well-established part of the financial services landscape, and uptake is likely to grow as sophisticated investors seek higher yields for the tax-free elements of their portfolios.

In the November 2023 Budget, then-Chancellor Jeremy Hunt extended the remit of the IFISA to include open-ended property funds and long-term asset funds for the first time. These changes came into effect in April 2024, and since then a number of IFISA-eligible funds have launched, raising awareness of the structure and its benefits to investors.

The upcoming ISA season will further spotlight the IFISA, giving another boost to the tax wrapper and the P2P platforms that offer it.

2. Consolidation

The P2P market has come under increasing regulatory scrutiny in recent years, and this has led to the departure of a number of platforms which were unable to meet the high standards of practice which have been set by the Financial Conduct Authority.

While some P2P lenders have opted to trigger the wind-down provision in their business model, others have simply pivoted away from P2P and rebranded themselves as alternative lenders. Further consolidation could take place in the market next year as smaller players wind down or are bought out.

3. Bank retrenchment

Banks have been lending less money to small and medium-sized enterprises (SMEs), and this has allowed the alternative lending market to boom in recent years. Banks have shown little willingness to resume these lending activities, and this creates a huge opportunity for alternative lenders to step in and supply much-needed funding to businesses, consumers and property investors across the country.

4. The rise of AI

Alternative intelligence (AI) entered the mainstream in 2024, but 2025 will see even more fintechs attempt to harness the power of AI to grow their businesses and reduce their overheads.

AI is already being used by some alternative lenders to collate and analyse data, and provide customer service via the use of chatbots. In the wider credit ecosystem some firms are using AI to create credit scoring models with the intention of speeding up their underwriting process. If successful, P2P lenders could dramatically enhance their loan decision processes to attract more borrowers and originate more loans.

5. ESG redefined

Environmental, social and governance (ESG) issues have been a corporate buzzword for years, but in 2024 the sheen came off ESG investments a little, as investors prioritised yield and became sceptical of the term ‘ESG’ amid a number of high profile greenwashing scandals.

The new eco-buzzword of the season is ‘impact’ investing, which focuses on biodiversity and longer-term results such as the green energy transition. The redefinition of ESG is likely to continue across 2025, particularly if stability returns to the markets, and investors feel that they can be more considered with their portfolio allocations.