Peer-to-peer lending set for growth in 2017
After a year in which more than £3 billion was exchanged through peer-to-peer (P2P) networks in the UK, 4thWay, a research agency dedicated to the sector, is expecting to see a lot more action within the burgeoning system in the coming year.
“We expect a second explosion in the number of people lending and the amount lent in 2017, due to IF Isas [Innovative Finance Isas],” says Neil Faulkner, co-founder and managing director.
An Innovative Finance Isa is a tool for investing in peer-to-peer products within a standard Isa wrapper, meaning your returns will be tax-free.
However, the disadvantage to making such a move is that in doing so your money would no longer be covered by the Financial Services Compensation Scheme, which protects up to £75,000 per banking firm of your deposited money.
“We’re receiving a lot of enquiries from 4thWay users about the new IF Isas, with ‘When are more major platforms going to offer them?’ being the most common question. Some people… are holding cash back to put into these tax-efficient lending accounts as more become available. Some investors are even waiting to sell shares from share Isas to transfer into IF Isas,” continues Mr Faulkner.
Crowdstacker, Abundance and Crowd2Fund already offer IF Isas, and Lending Works is expected to launch an IF Isa this January.
But while returns of “3%-7%,” and even “12%, [which] have been possible through short-term, asset back loans,” 4th Way expects to see these rates fall in 2017, “benefiting borrowers at the expense of lenders”.
4th Way also warns that it’s likely some P2P companies will close this year. Mr Faulkner explains: “Not all P2P lending platforms will win. It is likely that some platforms that have been unable to attract enough borrowers or lenders, or that do not have the skills or resources to assess borrowers properly, will close down. That said, we expect that most platforms that fail will wind down their existing loans smoothly, as those before them have done, so that their lenders won’t be seriously out of pocket.”
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.