The extra scrutiny of the platform lending sector is set to bring some welcome shaking out. There are many excellent operators in the sector, and the prudently run operations will survive – and, indeed, thrive.
Plum, the AI-powered savings app, has ended its partnership with peer-to-peer lending platform Ratesetter ahead of new rules which are aimed at better protecting investors using peer-to-peer platforms.
The regulator, the Financial Conduct Authority (FCA), is introducing a raft of new rules including measures which mean P2P lenders will have to introduce appropriateness tests and can only market their products to sophisticated, high-net-worth individuals or those who commit only to investing a maximum of 10 percent of their assets.
The new rules are being introduced following the high-profile failure of Lendy, the peer-to-peer network which collapsed with £165m in outstanding loans, earlier this year.
The regulator has been criticised in some quarters for its crackdown on P2P lending which come into force on the 9th of December.
Platform lending of the kind we facilitate here at Money&Co. can be a lucrative activity. The average yield achieved by our registered lenders over more than five years of loan facilitation on this platform is more than 8 per cent, before we deduct our one per cent charge. That return has handsomely outperformed retail price inflation, which has averaged around two per cent over this time.
Historical Performance And IFISA Process Guide
That figure is the result of over £19 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 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.