P2P Property-Backed Loans - If It Ain't Broke, Don't Fix It
Can you have too much of a good thing? We've been receiving feedback from lenders asking for more diversity in the loan offering. The latest loan, now 29 per cent funded, is a familiar one - it's the fourteenth tranche of Seascape, a property-backed offer with a fixed-rate yield of 8 per cent, and a term of five years.So, yes, it's more of the same. Solid, relatively safe compared to many peer-to-peer (P2P) loans on offer, but the loan no doubt has a very a familiar feel for regular users. We have two observations to make: first, we are sorry, but safe and solid seems like a good route to us; second, we will be bringing new loans on site, but they will, in the main, be property-backed too. In other words, they won't be massively different to the loans we currently have to offer. Our thinking is 'if it ain't broke, don't fix it'.Here's our thinking, in more detail: Money&Co. completed its first loan in July 2014. Initially, we focused on working capital loans to companies with a debenture over the company's assets. We are delighted that we have only had one bad debt since we launched the platform. Our experience of lending via a platform has changed our view of what is suitable security for a loan. We now believe that a debenture over a company is not sufficient except in rare cases where the company owns freehold property. We have, therefore, begun to seek further security where we are making working capital loans and we are now favouring asset-backed loans. An asset-backed loan is one where there is an underlying asset (a property, vehicles, machinery or intellectual property) and where we take a charge over that specific asset. We strongly believe that this gives our lenders better protection in the event of a default.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (ISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income.
A Process Guide To Innovative Finance ISA Investment
Our offering is an Innovative Finance ISA (IFISA) that can hold the peer-to-peer (P2P) business loans that Money&Co. facilitates. For the purposes of this article, the terms ISA and IFISA are interchangeable.So here's our guide to the process:
Step 1: Register as a lender. Go to the login page, and go through the process that the law requires us to effect. This means we have to do basic checks on you to comply with money-laundering and other security requirements.
Step 2: Put money into your account. This is best done by electronic transfer. We can also process paper cheques drawn in favour of Denmark Square Limited, the parent company of Money&Co.
Step 3: Buy loans in the loan market. Once you've put cash in your account it will sit there - and it won't earn interest until you've bought a piece of a loan. It's this final step that requires lenders and IFISA investors to be pro-active. Just choose some loans - all loans on the Money&Co. site can be held in an IFISA - and your money will start earning tax-free interest.
The ISA allowance for 2018/19 is unchanged from last tax year at £20,000, allowing a married couple to put £40,000 into a tax-free environment. Over three years, an investment of this scale in two Money&Co. Innovative Finance ISAs would generate £8,400 of income completely free of tax. We're assuming a 7 per cent return, net of charges and free of tax here.Once you have made your initial commitment, you might then consider diversifying - buying a spread of loans. To do this, you can go into the "loans for sale" market. All loans bought in this market also qualify for IFISA tax benefits.