Innovative Finance ISAs (IFISAs) returned an average of 9.01 per cent during 2021, showing that the peer-to-peer lending model can deliver inflation-beating returns during periods of prolonged economic and stock market turmoil.
New research from Peer2Peer Finance News found that despite the departure of some high-profile IFISA providers, the sector as a whole continues to deliver relatively stable annual returns via the IFISA tax wrapper.
In 2020, the average annual return on IFISA accounts was 9.04 per cent. During the 2020/21 financial year, the average target return being offered across 32 IFISA accounts was 8.72 per cent. In 2019, it was 8.45 per cent, and in 2018 it was 8.3 per cent. 77 firms have now been granted IFISA manager status by HMRC.
However, of those 77, four are in administration (The House Crowd, FundingSecure, Reyker Securities and Business Loan Network) and four others have closed their P2P lending business (RateSetter, Zopa, Landbay and Octopus Choice), thus rendering their IFISA permissions redundant.
A further three IFISA managers are not currently accepting new investors. LendingCrowd has been closed to all new investment since January 2021, while Guarantormyloan is not currently taking on new lenders. Meanwhile, Funding Circle has paused all new IFISA investments since April 2020, while it focuses on offering government-backed loans during the pandemic.
A Funding Circle representative told Peer2Peer Finance News that it would not be reviewing its retail investing business until the recovery loan scheme comes to an end in June. The Funding Circle IFISA is not expected to be available to new investors before then.
At least 20 platforms have not launched their own IFISA product, despite holding authorisation. These include the crowdfunding site Crowdcube, and challenger bank Monzo, as well as a number of asset management firms, financial advisers, and share-dealing sites.
However, among the 20 firms with unused IFISA permissions, two – Peer Funding and WiseAlpha – told Peer2Peer Finance News that they plan to launch IFISAs in 2022.
This leaves 46 authorised IFISA providers currently offering the tax wrapper to their retail lenders.
Among those 46 providers, 34 were able to share data on their returns. The average target returns for these 34 active IFISA providers across the whole of 2021 were between 7.22 per cent and 9.01 per cent, depending on the type of account chosen.
Of the 34 IFISA accounts which shared their 2021 returns, 13 were targeting double-digit returns, up to a maximum value of 18 per cent per year. The lowest target return recorded for the year was 1.2 per cent.
Over the course of 2021, several business P2P lenders reduced their rates by an average of one per cent, reflecting the competitive business lending environment which has characterised the year. Meanwhile, most consumer lenders increased their lender returns by between one and two per cent.
However, the majority of IFISA providers continued to offer the same or similar investor rates for 2021 as they did in 2020, despite a background of economic instability and stock market volatility.