IFISA Will Weather Industry Doubts Over Long-Term Future – Plus Loan Latest

Our friends at Professional Adviser run an opinion piece predicting that the Innovative Finance individual Savings Account will suffer because of regulatory or governmental hostility and/or ignorance.

We believe that the peer-to-peer (P2P) lending industry is already seeing a shake-out (losing the platforms that don’t have solid business practices and especially conservative risk-analysis policies).

Charles Randall, chair of the Financial Conduct Authority (FCA), said that he had seen not only “very risky”, but “sometimes fraudulent” investments within the Innovative Finance ISA.

sIt’s not the first warning from the regulator, which has issued notes on the prsoduct previously and seems to be encouraging the government to back away from the product.

His comments come as the Treasury and HM Revenue & Customs are currently assessing whether the rules and regulations around the Innovative Finance ISA are fit for purpose.

As part of its review into the collapse of London Capital and Finance, the government departments are looking at the tax treatment of the ISAs and how the market has developed since its launch a mere three years ago. It will look at whether the rules need changing and whether the current permitted investments will remain the same.

Surge of investments

The figures on the Innovative Finance ISA uptake tell a story of their own. The most upsto-date figures only show the first two tax years of the product, but they show a jump in the amount investors put into the products from £36m invested in the first year to £290m in the following year.

While it’s still not a colossal figure, as a result of the massive amount of advertising and marketing thrown at the products in 2019/s “ISA season” I’d expect to see those numbers leap even more when we get the stats for 2018/19.

The FCA has already announced plans to try to limit the amount the average Joe on the street can put into an Innovative Finance ISA.

Newcomers to P2P lending will be limited to having 10% of their assets in peer-to-peer loans unless they received financial advice. The move was branded “patronising” by some in the P2P industry, but is viewed as sensible by many others (the actual detail on how someone’s wealth is calculated and how robust the system for declaring that you’ve not breached the 10% limit is more woolly).

Loan Offer Latest

Woodville, rated A, for £200,000 with an 8 per cent fixed yield, is just closed. A new tranche will be landing on site soon. DK Tuning is a B+ loan of £280,000 with a five-year term and an indicative interest rate of 10 per cent. It’s 44 per cent filled at the time of writing.

  • At the time of writing, the loan has a current average yield of 11.1 per cent. That’s because of the auction process and some (frankly, speculative) high bid placed. What typically happens is that as the auction closes more competitive offers of credit drive out the expensive ones. Furthermore, the borrower has the option of not accepting bids it considers too expensive. Watch this space.

The loan funds will be used for an acquisition. See below an excerpt of the borrower’s representations as it seeks funds. As ever, we’ve done due diligence, but cannot warrant the accuracy of the statements. For more detail. CLICK HERE.

The performance of DK Tuning has been strong, with turnover doubling every year so far. Gross margins are stable at around 50%, and crucially we have enough staff and resources already to absorb the target business. The combined turnover of DK Tuning and the target company will be over 1.1 million on day one, and we predict that this will rise steadily as our better customer service model and improved rate of sales per sub-dealer take effect. There should be a slight uplift in gross margins because of the integration benefits.

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 £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 0.03 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 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.