Many an eyebrow was raised at the timing of this week’s tiny rise in base rates. Our friends at leading trade publication, P2P Finance News, called to ask our reaction. We excerpt the lead of the story below.
Peer-to-peer lending platforms have claimed that the Bank of England’s base rate increase to 0.25 per cent will not have any impact on the P2P lending sector.
The Bank of England has raised interest rates for the first time in more than three years today, up from its record low of 0.1 per cent.
Nicola Horlick, chief executive of Money&Co, was surprised at the increase given uncertainty around the rapid spread in Covid cases but said it will not affect the P2P sector.
“I don’t think it will have any impact on the P2P sector as we have continued to charge much higher rates throughout the pandemic,” she said.
“I am concerned, however, about the impact on the economy.”
The lender is seeking to fund claims for financial mis-selling. The term of the loan is 15 months.
HTLH was recently incorporated to fund pension mis-selling and irresponsible lending claims. The loan is currently 54 per cent funded.
Historical Performance And IFISA Process Guide
That figure is the result of over £24 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 2020/21 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.