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Friday, 8 January 2016

UK Peer to Peer Lending - Innovative Finance ISAs (IFISA) and the way ahead


Some cynics are nicknaming the proposed government IFISA’s as ‘iffy’ ISAs and, considering that these products are due to launch by 6 April 2016 (only 3 months away), surprisingly little is yet known about them.

The creation of Innovative Finance ISAs is all part of the UK government’s enthusiasm for alternative finance in general and in particular, Peer to Peer Lending.  This is surprising as it often seems the Conservatives (the clue is in the name) favour the wealthy, big banks and other traditional fat-cat financial institutions.  

However, George Osborne has been a champion of peer to peer lending for some time (reflected in his budget statements) with the government lending up to 10% of the cash for selected small businesses loans through platforms such as Funding Circle.

The IFISA may also eventually include other alternative finance platforms such as crowd funding but it is assumed by many that this will come later once the PtPL option has been added to ISAs.

Meanwhile the big banks as well as big brokers such as H&L have, until recently, shown little enthusiasm for Peer to Peer Lending (PtPL).  (Do a search on their websites to see what I mean.)

'Boy' George Osborne Loves PtPLending?

What do we know?

So what do we know about the IFISA?  Currently you can invest up to £15240 maximum (tax free) in a cash ISA and/or stocks and shares ISA.  Unfortunately both have their problems.  Cash ISAs pay almost zero interest and shares are more likely to go down rather than up in the current financial climate.  In April 2016, The IFISA will offer a third alternative allowing the allowance to be used on PtPL.

What DON'T we know?

So what DON’T we know?  Well, quite a lot!  Apparently the government have not yet finalised the rules for IFISAs, even though their introduction is only months away!

We know that the major players such as Zopa, Ratesetter and Funding circle hope to have their own IFISA wrapper.  It also seems likely that other platforms such as Assetz  Capital and Saving Stream will also move towards the ISA provision.   We also know brokers like H&L also plan to have a wrapper.  It is not clear yet what platforms or products H&L will put in the wrapper and also how much they will charge for this service.

The general consensus from the informed lenders (the Independent Peer to Peer Lending Forum) is that the interest available from the IFISA will be less than that available on the non-ISA product.  If, for the sake of argument, an IFISA offered 5% or less interest, then more experienced PtP lender might well opt for a straight platform loan with, for example, Saving Stream (12% interest with asset security) and then pay any tax owed.

Other common PtPL questions include: 

Will the new IFISA allowance be limited to just one PtPL platform or broker in a year?

Can existing lenders transfer existing PtP loans into an IFISA wrapper?

Watch this space for further ‘iffy’ ISA developments – Anyway, all these unknowns do make me wonder just how many of these IFISA products will actually be available to tax payers in April 2016!     

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