Yesterday we wrote about the debate surrounding peer-to-peer (P2P) loans as an asset class. We're a young industry, producing new things – although really, we're just like an old-fashioned credit union with a fancy 21st-Century internet platform instead of a big leather-bound ledger.
The UK's chief regulator, the Financial Conduct Authority (FCA) is considering how to include loans like those on our platform in New Individual Savings Accounts.
There are also call for P2P loans to be mainstrem assets in Self-Invested Pension Plans (SIPPS).
Below, we take a snippet from Money Saving Expert, an independent commentary platform, which explains what a SIPP is. We certainly think Sipps would make a good home for P2P loans.
"A SIPP is a DIY pension. Traditional personal pensions limit your investment choice to a shorter list of funds normally run by the pension company's own fund managers. With a SIPP you can invest almost anywhere you like and choose your own investments.
"But with that flexibility comes responsibility. A SIPP is for someone who understands investing, does the research and is happy to spend some time working at it. If you make the wrong investment choices, you've only got yourself to blame, so you must feel comfortable managing your own investment portfolio and picking your own investments.
"Think of a SIPP as being like a shopping basket. In that shopping basket you can place lots of different types of investments. The shopping basket (SIPP) holds those investments for you. And just like any other type of pension, it protects them from the taxman - you pay the money in before income tax is taken off. What this means in practice:
"When a basic-rate taxpayer, paying 20% tax, invests £100, it only costs £80 (for a higher-rate taxpayer, paying 40%, it would only cost £60); the amount that would've been in their pay packet if they'd paid tax."
*** We've seen continuing interest for the two loans currently on site.
Olsen Doors & Windows, a four-year, B-rated loan, has had a surge of money bid. It is currently offering a gross indicative yield of 10.7 per cent. It has now reached 54 per cent of its £250,000 funding target with 11 days left to run before the auction closes.
Globavista has an A-rated loan with a gross indicative yield of 9.5 per cent on offer at the time of writing. It has reached almost a quarter of its funding target. The auction closes in 9 days.
All the above should be read in the context of the risk warnings in this paragraph. It's very important that we point out to lenders that lending to our companies – carefully vetted as they are – carries risk. We take a legal charge on the assets of the companies and would step in to protect our lenders in the event of a borrower's defaulting on a loan. But before committing capital, please see the risk warnings on site, and in our Frequently Asked Questions. It's also a good idea to take independent advice from an accountant or solicitor. See also this video, which explains more about lending, including the potential benefits of spreading capital across a range of loans to lower risk.