AltFi P2P Survey: Lower Yields Still Appeal

Fat margins get thinner for investors

Investors in a diversified peer-to-peer lending portfolio made up of the largest UK platforms have seen returns after fees and losses fall consistently for three years. 

The overall headline change, from about 6.4 per cent in the second quarter of 2016 to 4.1 per cent at the end of 2018, as measured by the Link Asset Services Marketplace Lending index, is due to increasing loss rates at a time when the industry has been moving through a significant period of growth into an increasingly mainstream asset class for retail and institutional investors.

Over this period volumes have continued to grow at high double-digit levels while institutional investors have upped funding commitments and, in the UK, retail investors have been supported by a government-backed tax wrapper allowing £20,000 per year of peer-to-peer investments to shielded from tax.

Returns are still tempting

Despite its steady decline, the net return from peer-to-peer loans still looks healthy compared with readily available alternatives. For a start, 4.1 per cent is significantly positive in real terms – taking into account consumer price inflation, which is currently 2 per cent.

Not surprisingly, in the aftermath of massive Quantitative Easing by the Bank of England, peer-to-peer returns are also well above the risk-free rate on three-year UK government bonds, which stands at about 0.7 per cent. peer-to-peer loans also provide a higher return than baskets of investment grade sterling corporate bonds and high yield bonds of similar tenor. 

At 1.5 per cent, they’ll overshoot the allowance with £67,000 in an ordinary savings account.

Loan Latest 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). New loans are expected to land on site soon.

That figure is the result of over £17 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 5 years and has only had one bad debt so far, representing a bad debt rate of 0.04 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 2019/20 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.