P2P Loans 'Relatively Stable', Says Orca Money - Plus IFISA Latest


Our view of the current problems surrounding the sale of mini-bonds is simple: investors should be extra-careful, and make sure they understand the risks of investment - which must be clearly explained by sellers. As we have been at pains to point out (see Wednesday's News item) mini-bonds and P2P are different animals.Our friends at commentary and comparison site, Orca Money, as reported in P2P Finance News, argue that the mini-bond problems illustrate the relative strength of P2P as an asset class.

THE COLLAPSE of mini bonds provider London Capital & Finance (LCF) shows the dangers of chasing high interest rates while highlighting the relative stability of peer-to-peer lending, says Orca Money."The P2P investment aggregator's chief executive Iain Niblock said investors were "duped" by the promise of an eight per cent interest rate on LCF bonds. These bonds were used to make loans to corporate borrowers to provide capital for further investment, and turned out not to be ISA eligible.The FCA estimates 14,000 people had invested £214m through the bonds. The firm went into administration in January after the regulator ordered it to halt its regulated activity and stop marketing products."The high-profile collapse of mini bonds provider London Capital & Finance (LCF) plc, highlights the perils of solely chasing an interest rate," said Niblock."This is a horrible situation for the savers and investors who were duped into a highly attractive interest rate. The company cleverly used aggressive marketing campaigns and social networks to attract investors."Critics often focus on P2P lending being risky, but mini-bonds such as these seem to get an easier time, despite several high-profile failures in recent years such as Secured Energy Bonds and Providence Bonds, worth £7.5m and £8.15m respectively.

A Process Guide To Innovative Finance ISA Investment

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 almost £15 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:
  • 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.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.