As we move to close the latest A-rated, 8 per cent fixed-rate, property-backed loan offering on site, our credit-analysis committee tells us there are several more offers in the pipeline. In the four years this platform has facilitated over £11 million of peer-to-peer (P2P) loans. Money&Co. lenders have achieved returns of over 8 per cent. This outperforms inflation, which in the UK is running near the 3 per cent mark.
Money&Co. research shows that the average return for cash deposit accounts eligible for the tax-free benefits of Individual Savings Accounts is just 1.03 per cent. Given that discrepancy in yield, how come the P2P loan has not yet gone mainstream? Our friends at analysis platform Orca Money believe it’s all about distribution:
One key concern raised is around the sustainability of growth in pure peer to peer lending. The retail investor base in the UK is niche in its hundreds of thousands and without intermediaries the asset class will likely struggle to scale into the mainstream.
Money&Co.’s P2P loan returns become 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.
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.