Peer-to-peer lending stakeholders have praised the slow growth of the Innovative Finance ISA (IFISA) market and urged IFAs and investors to educate themselves about the sector.
The IFISA market had been growing fast year-on-year until the pandemic hit. By the end of the 2016/2017 tax year, 5,000 IFISA accounts were opened by investors, with a total of £36m invested in the tax wrapper and the next tax year this increased to 31,000 accounts with more than £290m invested.
Last month, Peer2Peer Finance News revealed that just 40 per cent of IFISA providers were open to retail investment. Of the 91 companies which have been authorised by HMRC to offer IFISA products, just 36 are accepting retail money for the 2020/21 tax year.
Speaking at the P2P Investing Summit, a virtual event hosted by Peer2Peer Finance News and AngelNews, Stephen Findlay, director of BondMason, said that slow growth is good to preserve the quality in the sector and that it’s a collective industry responsibility to promote the IFISA.
“The industry is going through a coming of age transformation,” he said.
“The marketing spend has probably reduced in getting the message out there, the number of voices in the industry has dropped over the last couple of years.
“I’m sure every platform wants more assets under management but there are two sides to it, you need to match supply and demand.
“We don’t want a wall of money grappling for opportunities. Slow growth is not necessarily bad, it ensures the good highest quality platforms remain.”
Roy Warren, managing director of Folk2Folk, agreed that quality over quantity is important for growth in the sector.
“Quality has to be the name of the game and if it’s slow progress then so be it,” he said.
Warren said that it’s difficult to generalise about the level of risk in IFISAs as there are various platforms offering different risks, and education is needed to combat the misconceptions of the sector and the Financial Services Compensation Scheme (FSCS).
“I can only speak about Folk2Folk but so often I come across investors who have a misconception of the [FSCS] scheme and there’s a feeling it protects against loss, but it just safeguards against the failure of a financial institution up to £85,000,” he said.
“We see a lot of misconceptions and certain things that are not very clear. I don’t view the IFISA to be any more risky than our other loans. All lenders within Folk2Folk are secured against property on first charge up to 60 per cent loan-to-value. Just be careful about the platform you invest in.
“I cannot advise on risk, it’s up to advisers and lenders to make their judgement call but all I can just say is no lender has lost capital with Folk2Folk since our inception in 2013.
“I would make an appeal to the IFA market and say please spend some more time to understand the P2P market because there is a misconception and I think the risk is overexaggerated.”