IFISAs vs. Regular Peer-to-Peer Lending. What’s the Difference?
(Capital at risk - Past performance is not an indicator of future results. Not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice. Please note that the parameters contained in this blog are subject to change as our business evolves).
Sometimes, the world of finance can seem overly complicated, and in our opinion, equally off-putting. Here’s our straightforward guide to the differences between an IFISA and “regular” peer-to-peer lending. There are some key distinctions that we think are definitely worth knowing about.
easyMoney is a peer-to-peer (P2P) lending platform, enabling you to invest in an Innovative Finance Individual Savings Account or IFISA for short. IFISAs have been around since 2016/17, and in a nutshell, the money that you lend – in easyMoney’s case to borrowers in the property sector – gains interest, that’s paid to you on a monthly basis tax-free.
So, it’s P2P lending, but we’ll explain more.
What you need to know about peer-to-peer lending
It’s not always easy for property professionals to qualify for a loan.
Step forward P2P lending, an increasingly popular way to invest or get funding without applying to the bank.
P2P websites operate as online marketplaces, acting as financial matchmakers to bring together borrowers and investors.
The first UK P2P website was launched in 2005. It was undoubtedly a game-changing idea and pretty niche at the time,
However, here’s a “did you know” fact: people have been lending to and borrowing from each other well before that. Actually, here’s one account of peer-to-peer lending in 18th Century France.
These markets functioned typically in small circles, where people living in neighbouring areas exchanged goods and cash for deferred payments, often being connected to more than one individual at any one time.
Sounds familiar. With easyMoney, the money you lend is divided between multiple borrowers, enabling you to diversify your portfolio and mitigate risk.
Getting started is easy: Open an account, choose a product according to the amount you would like to invest, and start to earn interest. At easyMoney, we pay the interest monthly and we also give our investors the opportunity to take advantage of our compound interest by automatically re-investing their interest if they so wish.
Important things to know
Please note we are not allowed to give financial advice, you should always consult an independent advisor before investing.
We’ll start with the most essential facts:
- Any interest that you earn through P2P lending will be seen as income. HMRC will want to know about it. That is, it will be taxable. Your personal savings allowance is however considered here, but if you’re a higher rate taxpayer, this amount is only £500. Compare and contrast IFISAs, below. Especially those from easyMoney, with target rates between 3.08-8% p.a. - TAX-FREE.
- Risk-free investments don’t exist, your borrower may default. Likewise, if your loan is repaid late, or early, you could make less of a profit than you’d hoped.
- To mitigate risk, each loan is assessed individually, with a weighted risk matrix. We allocate a score to each loan from A to J; A being the lowest and J the highest. Generally, we lend only against those that score A, B or C. Additionally, we secure every loan on our platform with a legal charge – meaning that should a borrower default, we will sell their property. easyMoney’s methodology provides a cushion to protect investors:
- Maximum loan to value (LTV) of 75% on Bridge Loans, usually 12 months.
- On development loans, a maximum of 75% of the initial value of the property, plus up to 100% of development costs. Taken together, our total lending is capped at 70% of the anticipated Gross Development Value (the price the valuer states the developed property will sell for).
- P2P lending is not covered by the Financial Services Compensation Scheme (FSCS), although P2P lending companies must be regulated by the Financial Conduct Authority (FCA) in order to market themselves and offer IF-ISA's.
An Innovative Finance ISA with easyMoney
The peer-to-peer lending concept is essentially the same, but with the following differences:
- At easyMoney, we create a diversified portfolio (as with other P2P lending platforms) but your selected borrower or borrowers will be businesses within the property sector and your loan backed by UK property.
- We’ve touched on interest rates, but with easyMoney, you could, depending on how much you invest, get a target return of between 3.08 and 8% p.a.
- Let us re-iterate that with your allowance of £20,000 per annum the taxman is left out of the picture. The interest that you receive on a monthly basis from us will be completely tax-free. You can also transfer in your existing ISA.
- easyMoney’s IFISA is flexible. As an investor, you have the opportunity and freedom to withdraw your money, and importantly – to put it back again within the same tax year without affecting your £20,000 annual allowance.
- To open an easyMoney IFISA you’ll need to be a UK resident with a UK National Insurance number. That’s it – it’s extremely easy.
Please be aware that the IFISA is not covered by the Financial Services Compensation Scheme (FSCS), but that we are fully regulated by the Financial Conduct Authority (FCA).
If you’re thinking about an IFISA, the time could be now.
Please get in touch with us for more information.
easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated in property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.
easyMoney is the trading name of E-money Capital Ltd, a company incorporated in England & Wales. Registered office is 5 Fleet Place, London, England, EC4M 7RD (Company No. 04861007). E-money Capital Ltd is authorised and regulated by the Financial Conduct Authority (FCA) #231680.