Peer to Peer Isas

[Andy46]

Hi

Does anybody know when ISA'a are going to be available for Peer to Peer lending such as Zopa. Zopa mentioned it earlier in the year but all seems to have gone quiet since.

Thanks

Moderator Message:
Moved from DAK to here - Chris

[andycowl]

I don't know about Zopa but I'm with RateSetter who state...

https://www.ratesetter.com/invest/innov ... inance-isa

Before a peer-to-peer platform can offer its own ISA, it must be fully authorised the Financial Conduct Authority (FCA). RateSetter are in advanced stages of obtaining full authorisation

I presume Zopa are also in the process of securing FCA authorisation.

[AleisterCrowley]

Yes, I was looking at these earlier this year, but it does seem to be 'on hold' in a lot of cases. There are a few around ('Crowdstacker' etc) but I haven't researched them , so not a recommendation....

[bungeejumper]

The word is that the Treasury isn't keen any more. The Govt is trying to promote ISAs (in general) as a solid investment that's 'safe enough' for a public that might not be very clued up on financial matters - but sadly peer to peer really doesn't make it over the safety bar. It was one of George Osborne's whizzy modern wheezes. Nuff said?

There have already been some brave (???) attempts to 'finesse' the peer to peer thing. P2P provider Wellesley managed to run a whole TV ad campaign earlier this year, saying you could get up to 7% p.a. from its "Savings Bond" with the added security of investing in property - without pointing out that it was essentially a peer to peer lending operation, or that "Investments offered by both Wellesley & Co Limited and Wellesley Finance Plc are not covered by the Financial Services Compensation Scheme. Wellesley Finance Plc is not regulated by the Financial Conduct Authority and does not offer any regulated services." (That's from their website, BTW, at https://www.wellesley.co.uk/products).

Peer to peer is fine for those who know what they're doing. Opening it out to Joe Public on the Clapham Omnibus is probably going too far.

Finally, in fairness to Wellesley, they say they are currently incubating an "Innovative Finance ISA". Details at https://www.wellesley.co.uk/innovative-finance-isa.

BJ

[andycowl]

Mind you, as my P2P investments are relatively small, the interest earned is now tax-free anyway (£1,000 for standard rate tax payers or £500 higher rate)

https://www.gov.uk/apply-tax-free-inter ... ax-you-pay

[melonfool]

There have already been some brave (???) attempts to 'finesse' the peer to peer thing. P2P provider Wellesley managed to run a whole TV ad campaign earlier this year, saying you could get up to 7% p.a. from its "Savings Bond" with the added security of investing in property - without pointing out that it was essentially a peer to peer lending operation, or that "Investments offered by both Wellesley & Co Limited and Wellesley Finance Plc are not covered by the Financial Services Compensation Scheme. Wellesley Finance Plc is not regulated by the Financial Conduct Authority and does not offer any regulated services." (That's from their website, BTW, at https://www.wellesley.co.uk/products).

BJ

I reported that ad to the ASA who referred it to the FCA, who don't then update you. It started Spring 2015, I remember because I was staying in a flat in London when I first saw it and it caught my eye ("wooah, what's that about 7%...." - looks at website....."ah....") and was also there when I saw it again, watched more closely and then decided to make the complaint. I moved out of that flat in June 2015.

The wording you have put above *was* on the ad, but it was in white on a grey background and that was the basis of my complaint, it wasn't prominent enough.

Mel

[quelquod]

Is it shown to be less risky than investing in shares (for the naive? Admittedly a short history so far of course.

[bungeejumper]

Is it shown to be less risky than investing in shares (for the naive? Admittedly a short history so far of course.

It's the short history that's the whole problem really. Although the big boys vet their applicants to weed out the dodgy ones and risk-rate the rest, and although they then spread the risk for lenders with a broad-diversified-portfolio approach, I'm not sure that they're all as conservative as that. And I'd imagine that the FCA would want to nail down the risk-diversification clauses very tightly indeed before it let P2P go mainstream through an ISA.

After all, it would only take one borrower in twenty to go completely down the pan and the damage to your 5% yield could be considerable. At present the default rate is well below that (see http://p2pfa.info/data, at the very bottom of the web page), but for some it's higher than that.

According to my reading of FundingCircle's website (https://www.fundingcircle.com/statistics , last para but two), 1.9% of its debt is currently bad (although I imagine that might not be the same thing as an actual default?) And 3.8% of existing debts are projected to go bad during their lifetime. I really hope that I've misunderstood something there! Please do correct me if I have.

BJ

[quelquod]

I don't use FundingCircle (their figures don't seem atypical BTW, but just need to be taken into account), but there's some useful reading in Zopa's blog here:
http://blog.zopa.com/2016/08/12/mythbusting-safeguard/
with a chart showing how their Safeguard system should protect against quite severe economic shocks.

Given the extent of defaults needed to erode capital it's difficult to agree that it's a worse investment than bank ISAs paying <1% say.

[genou]

Given the extent of defaults needed to erode capital it's difficult to agree that it's a worse investment than bank ISAs paying <1% say.

As long as you understand what you are getting into. The FT have been poking at this area for a while

https://ftalphaville.ft.com/search?q=P2P%20lending

[Andy46]

Thanks for the replies

[Neil]

A few of the P2P ISAs have now been released, but nothing from the likes of Zopa or RateSetter just yet.

Current list here: https://p2pblog.co.uk/innovative-finance-isa/

[toofast2live]

...but sadly peer to peer really doesn't make it over the safety bar.

Haha. I've been with ZOPA since 2008. It has been far less volatile than equity markets and not only survived the worst recession since the '30s but actually delivered a positive return unlike the 40% drop in some equity markets.

Personally I think P2P (along the lines of ZOPA and RS) is safer than equities, and on a par with decent quality bonds.

The problem is the industry does tend to over-egg its safety features, most notably in introducing "rolling markets" which imply instant access and no risk.

ZOPA has been around for nearly ten years and has endured a full economic cycle - it should not be beyond the capability of wiser minds than me to slap a risk rating on it and its peers.

P2P takes the place of Hedge Funds and Absolute Return Funds in my portfolio and it has not disappointed over the last nine years (which is not to say it may bomb, now i've praised it!)

[Ramage]

I agree that quality P2P is closer to bonds.

Post more about general P2P than ISAs, but Landbay do offer an ISA.

I use Funding Circle, Ratesetter, Landbay and have just joined Assetz Capital.

Returns (all untaxed) have been 10% gross, 6% net (after losses and fees) on FC, about 4.5% on R (no losses), about 4% on Landbay (no missed payments) and too early for AC but targeting 7%.

Returns are significantly better than cash but capital is at risk. Not on a par with equities in recent years, but I hold no bonds so gives my portfolio a more traditional balance.

Its worth understanding how any provision fund works, and how large defaults would have to be before capital is eroded.

Would recommend London Fintech Podcast, Mike Baliman has interviewed most of the key players. Altfi.com also helps me stay up to speed, they monitor big platform returns with Altfi data.

The FCA are expected to publish required changes for crowdfunding platforms and these are likely to be focussed on the P2P providers. Previous issues have included bailing out loans to prevent defaults and cross platform lending.

https://www.fca.org.uk/news/press-releases/fca-publishes-interim-feedback-following-call-input-post-implementation-review

Ramage

Disclosure
I hold shares in Landbay (invested through Seedrs) and also in Ratesetter (through a Neil Woodford fund).

[BrummieDave]

I have money in 4 of the major platforms, and started with small amounts in each, withdrew portions of them to ensure it worked and I understood it all, and have since been building up my investments. Not had any problems and am averaging just under 5%. Like others, I view this as less risky than equities, and a valid component of my overall portfolio. Don't really understand why others avoid P2P, especially the more established platforms.