Opinions appear to be aligning across the board as to how peer-to-peer investments should be incorporated within the ISA wrapper.
The UK government launched a month long consultation on the matter of how best to structure the P2P ISA in late October. Recommendations to the treasury have reportedly been pouring in from the major peer-to-peer platforms. Whilst we don't expect the government to breath life into the P2P ISA for at least 6 to 12 months, a clear consensus appears to have emerged on the subject of mechanics. Tellingly, that consensus is comprised of opinion from both within the peer-to-peer lending space and from external observers of the industry.
Broadly speaking there are three options on the table for the Treasury to weigh up. The first is that the platforms offer stocks and shares ISAs that invest solely in P2P lending. Second, that the platforms provide full blown stocks and shares ISAs – offering P2P investments alongside shares and funds so that investors may buy diversified ISAs. The third option is that a new type of ISA be created specifically for peer-to-peer lenders. From the moment George Osborne confirmed that peer-to-peer investments would be blended with ISAs, option three has been separating from the pack.
That trend has continued post-consultation. Charlotte Black, Head of Corporate Affairs at Brewin Dolphin wealth management, harbours concerns about the implementation of the peer-to-peer ISA. For her, the only way to circumvent confusion and contamination is to forge the third ISA type – distinct from the cash and equity varieties.
“We are concerned that peer to peer lending products – by their very illiquid nature and time horizons - could inadvertently damage the success of the ISA brand which is universally understood as a simple and successful savings wrapper with immediate access.
“As an investment adviser, with over £5 billion invested in stocks and shares ISA’s on behalf of nearly 100,000 investors we have several concerns: the underwriting process of the P2P instrument would need to be analysed before advice could be given; as well as an overriding worry that part of an ISA could have a different term to encashment than the instant access to the ‘ordinary’ equity element already established, in addition to the different risks that would then be within the ISA.
“Introducing debt as a qualifying investment to the ‘stocks and shares’ ISA is bound to confuse and contaminate. We would suggest a separate P2P lending ISA is established to accommodate this new and potentially exciting investment medium. So there would become three distinct ISA categories – cash; equity and debt.”
Rhydian Lewis, CEO and Founder at RateSetter, agrees with that approach – as indeed he has done from the outset:
“We are highly anticipating the outcome of the Treasury’s ISA consultation in 2015, which will be a landmark moment for the UK savings market.
“According to recent research we commissioned, 61% of Britain’s savers say they are struggling to get a decent return on their savings and four in ten (39%) feel that including P2P lending in ISAs would help to reinvigorate the ISA market. This shows that this is a much needed move by the Government to breathe life back into ISAs.
“What’s more, Britain’s savers are also backing a third ISA in addition to the existing cash and stocks and shares products – with 55% of ISA holders believing a separate Lending ISA will give savers more choice.
“If HM Treasury has savers’ best interest at heart it should follow through on George Osborne’s endorsement of the industry and provide a third type of ISA, serving to reinvigorate stagnant market rates for consumers and giving them the freedom of choice.”
N.B. Populus surveyed 2,052 GB adults online between 17-19 October 2014. Data were weighted to be demographically representative of all GB adults. Populus is a member of the British Polling Council and abides by its rules
And finally Kevin Caley, Founder and Managing Director of the ThinCats platform, showed his support for the third ISA cause:
“As the public consultation closes, there is a real sense of optimism that 2015 will see peer to peer lending become more and more appealing for SMEs and investors. We won't hear the exact outcomes of the consultation until next year but we strongly believe that peer to peer should be set up as a new class of ISA separated from other types of investment. This gives greater clarity to the industry and in particular the UK savers who have suffered low interest rates since 2007.”