We’ve come across an interesting feature from This Is Money on how to decide on whether a peer-to-peer (P2P) investment as an alternative to cash is a good idea.
Peer-to-Peer lending offers an alternative, particularly in the property space, as a viable, high return option that offers a good level of security for their funds. Loans secured on property also have other borrower guarantees, whilst providing the finance needed to build and refurbish the homes that are desperately needed, throughout the UK.
The article goes on to suggest some pertinent questions. In the first of two pieces on this topic, we highlight the first four.
The platform itself should be regulated. Be wary of platforms that cite a third party’s regulated status.
The Financial Conduct Authority is the regulatory authority for 58,000 Financial Services firms and financial markets in the UK.
This might be deemed by some as a common-sense point, but it is pivotal to look into a lender’s history prior to committing capital.
Regulated platforms are obliged to publish statistics on the performance of their Loan Books, including defaults and adjusted real returns.
Peer to Peer and other alternative lenders often publish headline interest rates. And although a published rate may apply to new loans, it may not reflect the historic average performance of a portfolio of loans.
Algorithms are undoubtedly a valuable tool to use when testing the viability of a business or consumer borrower. However, in order to produce reliable data, it should be stress-tested in prosperous as well as challenging times.
The lender should also always have expertise in the sector they are lending in. It’s always a good sign when a P2P lender identifies its sweet spot and hones in on this experience.
The return on our P2P loans becomes even more attractive if you hold the loans in one of our Innovative Finance Individual Savings Accounts. See below for our step-by-step guide to IFISA investing.
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:
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.
Risk: Security, Access, Yield
Do consider not just the return, but the security and the ease of access to your peer-to-peer (P2P) investment. We write regularly about these three key factors. Here’s one of several earlier articles on security, access and yield.