Is peer-to-peer lending safe in the UK?

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Peer-to-peer lending platforms connect individual lenders (investors) directly with borrowers, whether individuals or businesses, cutting out the traditional bank as an intermediary and typically offering lenders higher interest rates than standard savings accounts in return for taking on more risk. **Not covered by standard FSCS savings protection** This is the single most important point to understand: money you lend through a P2P platform is NOT the same as a bank deposit, and is NOT protected by the £85,000 FSCS deposit protection scheme that covers standard savings and current accounts. If the borrower defaults, or the P2P platform itself fails, you could lose some or all of the capital you lent, unlike a covered bank savings account where the FSCS would step in. **FCA regulation provides conduct oversight, not capital protection** P2P platforms operating in the UK must be authorised and regulated by the Financial Conduct Authority (FCA), which imposes rules around how platforms must operate, disclose risk, and treat customers fairly -- but FCA regulation governs the platform's CONDUCT and processes, not the underlying credit risk of individual loans, so regulation does not mean your capital is guaranteed or protected from loss. **Diversification within platforms** Most reputable P2P platforms spread your investment automatically across many different loans (rather than lending your entire amount to a single borrower), which reduces the impact of any single borrower defaulting, though it does not eliminate risk entirely, particularly during periods of broader economic stress when default rates across many borrowers can rise simultaneously. **Liquidity risk** Unlike an easy-access savings account, P2P investments can be harder to access quickly -- some platforms offer a secondary market allowing you to sell your loan parts to other investors before the loan term ends, but this isn't guaranteed, especially during periods of market stress when other investors may also be trying to sell, potentially leaving you unable to withdraw your money when you want to. **Tax treatment -- IFISA option** P2P returns are normally taxable as income, but many platforms offer an Innovative Finance ISA (IFISA) wrapper, allowing you to earn P2P interest tax-free within your annual £20,000 ISA allowance -- though the underlying capital risk remains exactly the same inside or outside an ISA wrapper; the ISA only affects the tax treatment, not the safety of your capital. **Platform failure risk** Several UK P2P platforms have ceased operating or gone into administration over the years, and while most have wind-down arrangements intended to continue managing existing loans on behalf of investors, this process can be slower and less certain than dealing with a solvent, ongoing platform. **Practical tip** Only invest money in P2P lending that you can afford to lose, treat published headline interest rates as illustrative rather than guaranteed (actual returns after defaults are often lower), diversify across multiple loans and ideally multiple platforms, and never treat P2P lending as a substitute for a cash emergency fund.

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