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P2P Sector Can Sail Through Credit Crunch Difficulties

Today, some fact-based predictions. A remarkable credit crunch is coming the way of the UK. Unpleasantness will follow, and the fallout will have ramifications for companies that deal direct with borrowers and individual lenders. In sum, there’s a reputational risk ahead for those involved in the peer-to-peer (P2P) finance industry. Money&Co., of course, will remain aloof and apart from the brouhaha on the doorsteps…

Inflation is increasing in an unprecedented manner in many developed and developing economies, putting greater pressure on the major reserve banks to raise interest rates.

In the United Kingdom, April inflation hit 9%, which is notably a 40-year high and the second highest inflation rate among the G7 nations.

In a recent update, Karen Lam, Director of Private Credit at M&G Investments, said that in this type of inflationary environment, the case for investing in short-dated private credit asset classes needs to be re-evaluated.

As noted by UK’s Blend Network, these asset classes “include floating-rate loans and instruments linked to a short-term interest rate, which could offer embedded inflationary protection and interest rate risk, thus providing relatively stable income streams.”

The Blend Network team also mentioned that “in truth, the current inflationary phenomena is a new phenomena for a generation of investors.” They added that “most developed markets at least, haven’t really faced protracted inflation since the 1970s – over the past 3 decades, inflation printed at around 2-3% a year, for the most part.

Historical Performance And IFISA Process Guide

  • Money&Co. lenders have achieved an average return of more than 8 per cent gross (before we deduct our one per cent fee). 

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.

  • Money&Co. has been lending for over 7 years and has only had two bad debts so far, representing a bad debt rate of 0.03 per cent per annum.

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:

  • 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 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.

 



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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.