Peer investors lend a hand
IF ANALYSTS have called it correctly, the Bank of England will next month hike its base rate for the first time since November. However, an increase to 0.75 per cent would do little to relieve the pressure on those who continue to see the value of their savings eroded by the rising cost of living. Inflation eased slightly to 2.7 per cent in February, but remains above the Bank of England’s two per cent target. With the average easy-access cash ISA offering little more than one per cent interest, according to personal finance data provider Moneyfacts, where can you turn to find inflationbeating returns?
Investing in shares has traditionally been seen as a way of taking additional risk for potentially higher returns than a cash savings account, but recent volatility sparked by Brexit and trade tensions between America and China has highlighted how quickly sentiment can change in the stock markets.
For those seeking more stable returns, peer-to-peer (P2P) lending could be the answer. By using an online P2P platform, investors can lend directly to individuals or businesses in return for regular repayments of capital and interest. Following the introduction of the Innovative Finance ISA, you can invest up to £20,000 in P2P loans this tax year, with no income or capital gains tax to pay on your returns.
The number of people investing in Innovative Finance ISAs continues to rise and the average investment has grown from about £8,000 at the start of 2018 to almost £10,000 today. To invest, you must be a UK resident aged 18 or over. You can download more information about P2P investing at www.lendingcrowd.com/guide in 2005, when Zopa became the first platform to connect individual lenders directly with individual borrowers. Since that time, the market has evolved rapidly, covering personal loans, property finance and business finance. Loans are being provided by a wide range of specialist platforms, such as LendingCrowd for businesses and Zopa for individuals.
Since April 2014, the sector has been overseen by the Financial Conduct Authority and, in November 2016, LendingCrowd became the first specialist P2P business lender to become fully authorised by the City watchdog.
Small firms are the backbone of the UK economy and are increasingly thinking outside the bank for their finance options, creating more opportunities for investors.
Research published in February by the government-owned British Business Bank showed that total P2P business lending across the UK rose by 51 per cent to almost £1.8 billion in 2017. In short, there is a plethora of lending options out there, creating more opportunities for investors looking to make their money work harder.
Before investing, it is important to understand the risks involved and minimise potential losses through diversification. Choose a platform that can automatically reinvest your repayments and build a diverse portfolio of loans for you from the outset.
By joining thousands of other P2P investors, you can lend to creditworthy borrowers, generating real benefits for the British economy. In return, your money has the opportunity to work harder for you and deliver inflationbeating returns.
Stuart Lunn is CEO and co-founder of LendingCrowd, 0345 564 1600, lendingcrowd.com
As an investor, it is important to remember you are lending to businesses so your capital is at risk. LendingCrowd and its products are not covered by the Financial Services Compensation Scheme. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future