Call it platform lending, marketplace lending or peer-to-peer (P2P) lending, the loans facilitated in our sector are a new asset class. The novelty of platform lending has contributed to a classic case of the syndrome known as fear of the unknown.
There have been some high-profile failures in the sector. The lesson we’ve learned from from this is the need to vet platforms carefully. Are they conservative in their risk analysis of the companies seeking to borrow? Does the platform take a charge on the borrowers’ assets to safeguard lenders’ interests? What is each platform’s platform’s default rate for failed loans? We’ve written about this extensively.
The advent of the Innovative Finance Individual Savings Account (IFISA) which can contain platform lending has been a modest boost for the asset class. Our best intelligence is that that running total of IFISAs is under £5 billion. This is a relatively small proportion of the Individual Savings Account market (see below).
Time will prove the quality and value of carefully managed lending platforms and their products. History may have lessons for the market here: Thirty years ago private equity was scarcely acknowledged as an asset class until the actuarial profession began to recognise that well-managed private equity was a good asset class for pension funds. We’re confident that history is on our side…
ISA Facts
New Loans Latest
Project Rhapsody is now 74 per cent funded. The loan offer has an A risk rating, and provides a fixed-rate return of 8 per cent over five years.
Fuller detail is excerpted from the borrower’s offering on site below. The whole pitch – vetted according to our credit committee’s best efforts, though we cannot warrant the accuracy of the statements – is available to logged in users.
Historical Performance And IFISA Process Guide
That figure is the result of over £18 million of loans facilitated on the site, as we bring individuals looking for a good return on capital together with carefully vetted small companies seeking funds for growth. Bear in mind that lenders’ capital is at risk. Read warnings on site before committing capital.
All loans on site are eligible to be held in a Money&Co. Innovative Finance Individual Savings Account (IFISA), up to the annual ISA limit of £20,000. Such loans offer lenders tax-free income. 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:
The ISA allowance for 2019/20 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.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.