New Loans Set Land: So Let's Re-Examine Basics - Security, Access, Yield
It's no secret that we've been lining up new loan offerings, and that these attractive, property-backed creatures will be landing imminently on site. It's at such times that a moment of quiet reflection and reappraisal is essential.
We believe at Money&Co. that the key factors of asset appraisal for any investor's consideration are security, access and yield.
We have used these criteria in launching our own P2P loan portfolio (average gross yield of over 8 per cent across £13 million facilitated loans). We believe these criteria should be used to judge any investment – in a fund, or share, contract for difference, or other security.
Security - The extra security of the FSCS may be very attractive to some. The guarantor of up to £85,000 of deposit is effectively the UK government. Money&Co., while licensed as an independent financial adviser and answerable to the Financial Conduct Authority, does not offer such security. But we do ensure that a debenture, a legal charge, is taken on our borrowing companies' assets to protect our lenders. And our credit-analysis is very rigorous – with no bad debts in over four years.
Access - Do you need access to your cash in the short term? If so, the fixed-term provisions of the deposit accounts may seem onerous. Money&Co.'s loans can be for as short a term as one year. Most are longer, with a maximum term of five years. But if you want to take your cash back early, you can do so using our recently launched auction market. This means that you can sell your loan at any time to another Money&Co. lender.
Yield – Deposit accounts are linked to long-term interest rates, which are a lot lower than the yields offered by our borrowers. Money&Co. lenders average a gross return of more than 8 per cent. This is 7 per cent net of our fees, and all loans can be held in a tax-free ISA wrapper.
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.
Current Loan Offer
We currently have an A-rated, £100,000 five-year loan on site. With a fixed rate of 8 per cent it is secured against property – and will close when filled. At the time of writing, the offer is currently 64 per cent filled.
In addition to new loan offerings, our secondary loan market, offering existing loans for sale by lenders, is available to registered Money&Co. users. All loans can be held, tax-free, in an Innovative Finance Individual Savings Account, or Innovative Finance ISA.