Nigel Hackett, director at property-backed peer-to-peer lender FundingSecure, details the recent changes in the P2P market following the introduction of the Innovative Finance ISA
FundingSecure was the first peer-to-peer platform to offer loans secured against property and one of the first to offer tax-free investments through an Innovative Finance ISA (IFISA).
When FundingSecure first started, we were the only peer-to-peer platform offering fully secured loans. Initially our focus was on assets such as jewellery, luxury vehicles, artwork and collectibles.
This rapidly expanded and we became the first P2P platform to include short-term bridging loans secured against property, in order to meet the needs of borrowers and to satisfy our growing investor base.
In April 2016, the UK government launched the IFISA. Although targeted primarily at the P2P market, there were very few products on the market at the time of launch. This was mainly due to the prerequisite of full Financial Conduct Authority (FCA) authorisation, rather than interim permission, which most platforms had.
The FCA had initially focussed on authorisation of the personal loan space, particularly payday lenders, as it felt this area was in urgent need of revision. Only when the focus turned to the P2P sector did firms start to become fully authorised, with FundingSecure being one of the first.
In April this year, within three weeks of becoming FCA authorised, we launched our IFISA. While we expected an increase in the level of investments from existing members, we were pleasantly surprised at the number of new investors who joined us over the following months, primarily through word of mouth from existing members.
In the past there was an element of the unknown for many potential P2P investors, with many waiting to see how the industry developed before taking the plunge. However, with increasing public exposure, particularly following the launch of IFISA products, individuals are increasingly looking towards the sector.
In some ways the advent of the IFISA has legitimised P2P platforms, spurred on by the continuing low interest rates available elsewhere. The returns offered by the platforms, such as ours which range from 12 to 13 per cent, are even more appealing when compared to the two to three per cent offered by cash ISAs.
Although investing in IFISAs is not risk-free, newer investors are evidently willing to accept that risk, while spreading their investments across multiple loans to diversify their holdings. The average holding of our investors is £22,800, which is typically spread across more than 135 investments. With £110m returned from more than 1,200 completed loans to date, the actual interest rate (net to investors) has equalled 13.2 per cent per year.
In order to diversify their portfolios quickly, we have also seen a massive increase in purchases through the secondary market – deals equate to over £8m per month, more than two-thirds of which relates to IFISAs. This allows new investors to start earning interest straight away and ensures existing investors are able to diversify their current holdings.
As word spreads of the potential tax-free earnings that people can enjoy, we are seeing the above trends continuing – with no reduction in the number of new investors and the transfer of both cash and stocks and shares ISAs into the IFISA.
Whilst the amount invested through P2P platforms still remains a small proportion of the total amount invested in the UK, it is by far the fastest growing market and the addition of IFISAs looks set to further accelerate this growth.
To investigate this investment opportunity further, please register on our web site (fundingsecure.com), which is free and without obligation. Once registered you will be able to see the current offerings available, as well as the full history, broken down by each individual investment.