where will it all end

I agree that there will be both increased interest rate competition and relaxed lending standards at traditional lenders. I don't agree that it's doom for P2x but I do think that it is a competitive challenge. Lets consider my options today:

1. Almost anyone can open a Santander 123 account and get 3% taxable interest with full FSCS protection on up to £20,000 deposited, plus rebates on bills to cover the cost of the account and make a profit, probably.
2. I can get about 3% increasing with Bank Rate tax free using a mortgage offset account. I'm potentially liable to higher rate income tax and that's the equivalent of 5% taxable, or 3.75% at basic rate.
3. Typically there are VCTs offering the equivalent of 8-9% and those using P2x heavily are also much more likely than usual to be suitable candidates for VCT use.
4. Pensions of course. I'm of an age where money in a pension is not locked up so much any more, in the not so distant future. the tax relief plus the underlying investments can beat some P2x returns.
5. The higher rate P2x, like Bondora. Impressively high rates and good default and collections performance. It's doing an excellent job of providing effective interest rate arbitrage for UK investors but is suffering from unsurprising excess of investor demand over supply, though of course with Euro/Pound exchange rate issues to consider.

On the personal rather than business credit side I don't have a shortage of options to borrow on credit cards at effective interest rates below 3% using 0% for purchase cards or balance or money transfers in possibly creative combinations. Ordinary personal loans can be had even at 3.9% for good candidates in the £7,500-£10,000 range with 8% for smaller amounts.

For business borrowing I do not have sufficient knowledge of the market to comment in any useful way so I'll leave that to others.

Can Wellesley compete?

For me, clearly not for any term shorter than five years because the before tax interest rate may well be below the mortgage equivalent. An increase in Bank Rate will make that even harder because of the tax relief leverage effect on the return. For five years where Wellesley advertises 6.76%? Maybe, except for five years I can use VCTs to get 8-9% tax free after allowing for the effect of the 30% tax relief on the purchase price. Or I can just know that the long term UK stock market return is around 5% plus inflation, perhaps 8-9% at the moment if I ignore the current cyclically adjusted P/E, and is partly tax free due to CGT allowance, or more so if in an ISA.  So even though I like a lot about the Wellesley product I doubt that I will use it at present: it's being out-competed by my other options.

Can other P2x compete? Some, certainly, but the interest rate margin for taking the investment risk is not particularly high at present in many cases.

It's likely that this will be the year in which I make my first use of VCTs.

At present one advantage p2x has is that many perceive it to be a savings product rather than an investment product, so a lot of people don't seem to be comparing it to other investments. I don't think that advantage will persist long term.

Overall I'm optimistic about P2x but still I think there are significant challenges to deal with.

While everybody here is agreeing with each other, may I put in a discordant note?  First, the P2P investors/savers are not an homogenous bunch.  They are there for different reasons.  Most of the contributors to this forum seem to be investment-savvy and highly interested in maximising their returns on their portfolio, but it is obvious that there are a heck of lot out there who do not share these characteristics.  Can we really draw conclusions about the future of P2P on the basis of the opinions of the former who form a minority?  Second, while I agree that there are many good reasons from a government perspective to keep interest rates low for as long as possible, I see no reason why the transition to 'normal' rates should be violently disruptive.  It surely depends on the pace of change.  I always thought I was a Jeremiah until I read the posts here!

I think there is a lot of truth in the original article by Hunt.  He does not forecast the end of P2P but adaptation to a different world.  Obviously, the banks and the building societies will one day be more competitive, and that will impinge on P2P.  We should also differentiate between the different P2P models that exist - those that demand the investor take some time to consider the viability of the investment (FC and AC, for example), and those that make the decision for us (RS and Wellesley, for example).  The latter are much more attractive for investors without much free time and those without any interest in business and investment analysis.  And this segment, I suggest, is numerically the larger, though whether it is the larger in terms of investment I have no idea. The P2P organisations will have this information and will have a much better handle on how many of their investors are long-term players, but they are unlikely to tell us.  It is this segment - the ones who aren't watching their portfolio everyday -  which is likely to revert to traditional forms of saving when the tide turns.  I count myself as one of them, unless the likes of RS and W can stay ahead of the game.  But for FC and the like, I see this just as a flirtation - these girls are just too demanding of my time! 

I would also add that another recession is clearly on the horizon but not before elections are over. The national debt, at some £1.3 trillion, is staggering & frightening & I daren't contemplate how this endless supply of credit is going to end & how devastating it will be for families & individuals who have the attitude of 'spend today, worry in a few years' time' How will all this affect, if any, p2p lending? No one knows, we'll just have to wait & see