- ‘Third ISAs’ and blended products from peer-to-peer (P2P) platforms amongst options
- Third-party administrators will speed up introduction
Peer-to-Peer Lending Gains Ground in ISAs
Following another disappointing ISA season, providing a better alternative for hard-pressed savers should underpin how P2P is included within the tax-free wrapper, according to leading UK platform RateSetter.
The company is involved in discussions with industry peers and the Treasury on how best to allow savers to include P2P in their ISAs, ahead of a government consultation in July.
How P2P Platforms Will Operate as ISA Managers
It has already been agreed that the P2P platforms will be able to offer their own product direct and act as ISA managers. However, the particulars of how this would work in practice have yet to be confirmed.
The options currently on the table include:
- A straight swap – platforms simply offering a straight Stocks and Shares ISA option investing in P2P lending only. However this would severely limit savers’ choices as they can only open one Stocks and Shares ISA a year, and so would have to put 100% in P2P or 0%.
- A diversified portfolio – a ‘Third ISA’ category based purely on P2P. This would allow savers to diversify across Cash, P2P and Stocks and Shares. P2P would represent a middle ground, with lower associated risk than Stocks and Shares, and higher returns than Cash.
- A blended product – platforms ultimately developing Stocks and Shares ISAs that allow both P2P and other investments.
Expert Insight on P2P ISAs from RateSetter
Rhydian Lewis, CEO and Founder of RateSetter, said:
“Allowing P2P companies to become ISA managers is a key milestone in the development of the sector that will change the savings industry in the UK for the better.”
“The practicalities of how this innovation will work have still to be ironed out. The creation of a ‘Third ISA’ category would open up a whole new alternative to polarised cash or investment options for savers – providing that missing link between low yields and high risk.”
“But we believe that providing ISA savers with our own blended product is also a valid way to breathe new life into the ISA industry. As we are a technologically advanced sector, the hurdles this presents will not be insurmountable. However, the sooner the finer points are resolved, the sooner investors will be able to benefit.”
“The absolutely critical point is to not restrict savers’ options.”
Regulatory Challenges for P2P ISA Managers
One issue to be resolved is that P2P platforms require regulator permissions before they can become ISA managers and these will not be in place until autumn 2015. Using ‘interim permissions’ may be a route to speeding up this process, but this would require P2P companies to have third-party back-up administrators, with custodian banks one clear option.
Market Demand and Future Outlook for P2P ISAs
The Government announced in the Budget earlier this year that peer-to-peer platforms can be included in ISAs to answer huge existing demand from savers. Nearly a third of people (31%) nationwide would be more likely to put their savings into a P2P account if they could do so through an ISA, or New ISA (NISA) as they are to be called from July1.
It is estimated this will lead to massive growth in the P2P market in the UK over the next five to 10 years, with the market increasing from around £1bn to £45bn2.
