Paul Sonabend, executive chairman of Relendex, explains the huge potential of cash ISA conversions into the property-backed IFISA market
THE INNOVATIVE Finance ISA (IFISA) has unquestionably revolutionised the peer-to-peer lending space. But the challenges still remain. According to the most recently published HMRC data, just £290m was transferred into IFISA accounts in the tax year 2017/18, compared to a cumulative total of £270bn sitting in cash ISAs. This is despite the fact that the average return on cash ISAs last year was less than one per cent.
Every IFISA manager wants to bring in more money, ideally through transfers out of low-earning cash ISAs. But Relendex is taking a more methodical approach than most.
Earlier this year, the P2P platform carried out a survey to gauge the level of ISA awareness amongst the general public. The survey found that almost half (48 per cent) of the people surveyed had never moved their ISA money, while the people who had moved their ISA savings and investments did so an average of once every five years. It is these static ISA investors who Relendex wants to win over.
“Something like 10 per cent of ISA money is moved in one year,” says Paul Sonabend, executive chairman of Relendex. “So that leaves about £250bn that will not have moved this year.
“This means there is a very large sum of savings that is essentially falling in real value, with returns that are less than inflation.
“So the first thing we want to do is to explain that there are alternatives and get the IFISA message out there – that we are simply offering retail investors the chance to invest in the kind of things wealthy people have been able to invest in for a very long time.”
This is a key message that Sonabend is trying to get across to would-be IFISA investors who are suspicious of the ‘too good to be true’ combination of high returns and low risk.
“For a very long time, wealthy individuals have been able to make double-digit returns by investing in bridging loans and property,” says Sonabend. “What P2P lending does is allow the general public to come and invest in the same assets as the wealthy because we fractionalise those assets. Whether you put £1m on our platform or £2,500, you will get the same return.”
However, as many P2P lenders have found, getting this message out can be challenging. Relendex’s research also found that just eight per cent of the UK population had heard of an IFISA – although to put this in context, five per cent also said that they had heard of a fictitious ‘Drawdown ISA’. But this just means that there is much more scope for growth, says Sonabend.
“We don’t need all £270bn of cash ISA money to move into our sector to make a substantial difference,” he adds. “If 10 per cent of that moved into our sector and of that 10 per cent, a fifth of it was in the property area, we’d be talking about £5bn coming in to bridging and development through property IFISAs.
“Communicating this is a work in progress, but we are very optimistic about what the future holds.”