PEER-TO-PEER lenders are gearing up for their best ISA season yet, with Innovative Finance ISA (IFISA) volumes predicted to soar as investors rush to allocate their tax-free allowance before the end of the fiscal year.
IFISA providers have reported increasing inflows from ISA transfers, as investors eschew low-yielding cash ISAs and volatile stocks and shares ISAs.
Stuart Law, chief executive of Assetz Capital, said the P2P lender’s tax wrapper is attracting higher levels of subscriptions than ever before, with investors putting £18,000 on average into its IFISA last year.
Read more: P2P lenders bullish about 2019 IFISA boost
“This is undoubtedly down to investors seeking out a ‘third way’ that offers respite from the general volatility of the stocks and shares ISA and the lack of returns provided by the cash ISA, with the IFISA quickly becoming the option of choice,” he added.
“As more investors come to recognise the advantages of the IFISA, we’re confident of a continued uptick in ISA transfers to the platform – we have seen several substantial transfers take place already.
“The popularity of the IFISA is showing no signs of slowing down, and we’re anticipating even stronger interest this ISA season.”
A spokesperson from P2P property lender Kuflink said they expect the IFISA market to “at least double” over the coming year.
“We tend to see more cash ISAs coming in as savers seek an increase in rates, however some stocks have been particularly volatile this year so we are starting to see more uptake from stocks and shares ISA customers in search of more predictable returns,” the spokesperson said.
“The IFISA’s main challenge so far has been a general lack of awareness but, thanks to the industry’s efforts this year, numbers seem to be picking up across the board. We have a long way still to go but I think the market will at least double over the coming year.”
Sophie Pearce, managing director of MoneyThing, said the P2P business lender had seen a recent “flurry of activity which we expect to build as we move towards the end of the tax year.”
“With some interesting loans on the horizon we are anticipating good take-up of this tax-efficient product,” she added. “With cash ISAs offering such unattractive rates, the IFISA compares favourably with the better-known stocks and shares ISA, especially as the P2P market matures.”
Interest rates on savings accounts remain at near-historic lows. According to Moneyfacts, the average instant-access cash ISA paid out an interest rate of 0.94 per cent in January of this year.
With inflation still hovering near the two per cent mark, this means that cash ISA savers will see the value of their holdings eroded by rising prices.
Read more: Cash ISA vs IFISA: how do returns compare?
Meanwhile, the FTSE 100 plummeted by 12.5 per cent last year – its worst decline in a decade. This equated to more than £240bn being wiped off its constituent companies, amid ongoing fears of a US/China trade war and Brexit-linked uncertainty.
“The IFISA represents an excellent middle ground for investors put off by the increasingly turbulent equity markets or disappointed by the pitiful returns offered by cash ISAs,” said Andrew Lawson, chief product officer at Zopa.
“This year, as the IFISA and P2P lending continue to enter the mainstream, we’re seeing more and more people quite rightly demanding fairer, simpler, and more intuitive products which do away with hidden fees or introductory rates that swiftly disappear.”
The ‘big three’ P2P lenders – Zopa, RateSetter and Funding Circle – all have IFISAs now, which is expected to help boost the market this year due to their greater brand awareness and larger customer bases.
“Regulatory delays meant the launch of IFISAs by P2P platforms spanned across the 30 months following the April 2016 IFISA launch date,” said Iain Niblock, chief executive and co-founder of P2P analysis and investment platform Orca Money.
“With these three players now offering IFISAs we expect to see significantly more volumes in this ISA season.”
This article featured in the March issue of Peer2Peer Finance News, now available to read online.