The insulating effects of our niche lending policies – avoiding the rollercoaster credit ride of the general economy – are becoming clear.
Peer-to-peer lending chiefs are predicting a rise in defaults for unsecured loans this year but not for asset-backed facilities.
The Bank of England’s latest credit conditions survey – which polls a range of bank and building society lenders – showed defaults for both mortgages and unsecured lending are predicted to rise in the first three months of this year.
Lee Birkett, chief executive of JustUs, said he expects there to be defaults in unsecured lending due to the tapering of government support for businesses, and Brexit-related issues.
He said JustUs does not expect a rise in defaults as it mainly conducts asset-backed lending. The small proportion of unsecured lending it does is to homeowners who need a relatively large amount of equity in their property to prove their financial standing, or to have a guarantor with that standing…
Nicola Horlick, chief executive of Money&Co, agreed that defaults will rise for unsecured lending while her secured P2P lending platform will not be affected.
“For those platforms that have lent for working capital and are unsecured, I would expect that defaults will rise,” she said.
“We have only lent in our specialist areas and are secured and so I do not expect defaults to rise for Money&Co.”
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.