The dust has now settled on George Osborne’s Autumn Statement, and the alternative finance space exhales. The Chancellor had a few surprises in store, both in terms of what was mentioned, and what was not. We were told, for instance, to expect some manner of update as to the functionality of bad debt relief for peer-to-peer investments. It may be that some such legislation emerges over the coming days or weeks, but nothing has been logged on bad debt relief in the pages of HM Treasury’s “Spending Review and Autumn Statement 2015”.
Another somewhat ominous omission from the fine print was any mention whatsoever of 6 April 2016 – which has been earmarked as the date that peer-to-peer lending platforms will become eligible for ISA investment. Many industry participants were expecting an assurance from HMT that this deadline would be honoured, but there is no such assurance to be found. Time to panic? Probably not at this stage, as there’s no evidence to suggest a governmental backtrack, but the silence is perturbing.
There was, however, some mention of the Innovative Finance ISA (IFISA). HMT has confirmed that the list of qualifying investments for the recently formed IFISA wrapper has been extended to include “debt securities”. In other words, the various bond (and mini-bond) offerings are in. Such products are purveyed by the likes of UK Bond Network, Wellesley & Co. (see the Wellesley Mini-Bond) and Abundance. The mini-bonds that we've seen popping up on some equity crowdfunding sites have not been included, as these are non-transferable. Whether or not the IFISA will be extended to include equity remains to be seen. We're told that government will “continue to explore the case”. But for now, equity will remain outside of the IFISA’s reach. Christine Farnish, Chair of the P2PFA, offered her thoughts on the decision:
“This decision is welcome. We believe the risk of this asset class is closer to stocks and shares than a peer-to-peer loan. It is important that consumers are not confused by mixing up equity-based products to debt-based products.”
You can access the HM Treasury’s “response to the consultation on whether to include investment crowdfunding” by following this link.
An intriguing development on the referrals front: a handful of Credit Reference Agencies (CRAs) have been designated as points of SME credit information referral. These designations are distinct from the mandatory referral scheme – which entails the referring of SMEs by the banks to the alternative finance space, via specialist referral portals (such as Funding Options). Instead, item 1.221 in the Autumn Statement states that Experian, Equifax and CreditSafe will now receive SME credit information from designated banks, and will be required to provide “equal access” to this information to “all finance providers”. Government is calling this “a major structural reform that will promote competition in the SME credit market”. Louise Beaumont, Head of Public Affairs at GLI Finance, reacted:
“These measures are another key milestone in helping level the playing field between traditional lenders and alternative finance providers. They are further testament to the industry’s success in reshaping the credit ecosystem to the benefit of UK SMEs and the provision of equal information to all finance providers will further accelerate the opening up of previously untapped sources of funding.”
And finally, some potentially bad news for the Landbays and LendInvests of the world. As of 1 April 2016, higher rates of Stamp Duty Land Tax (SDLT) will be charged on purchases of “additional residential properties” – which includes both buy-to-let properties and second homes. The SDLT has been hiked by 3%. Might this harm the origination volumes of the peer-to-peer sector’s buy-to-let mortgage lenders? Here are the thoughts of Ian Thomas, Co-Founder and Director of LendInvest:
“This is part of the Chancellor's campaign to further professionalise the landlord and developer market, removing from the sector over time the part-time landlords that the government fears are taking valuable housing stock out of the market for aspiring homeowners.”
“Any landlord will be impacted by this change next time he looks to buy or sell, but the most professional landlords should be able to mitigate some of the impact by planning carefully and thinking long term about their rental portfolios.”
“I would expect BTL stamp duty hikes to have the greatest impact on the buyers and developers in Inner London market.”
And how about the equity-based property platforms? Andrew Gardiner, Founder of Property Moose – which has facilitated a little shy of £2.5m to date, weighed in:
“During today’s Autumn Statement, the government announced a plan to crackdown on buy to let investors in order to help Britons who are trying to get onto the property ladder.”
“However, this doesn’t mean investing in property will become inaccessible. People looking to invest in bricks and mortar can look at an alternative – property crowdfunding – which may even negate the suggested barriers in the buy to let market that the government want to introduce next year.”
A mixed bag, then, for the alternative finance space. The omission of certain details – specifically those relating to the IFISA deadline – will likely garner the greatest amount of attention. As the various platforms scramble to ready themselves for what could be a downpour of tax-free cash, greater clarity on the situation would have been most welcome. All the more so in light of the FCA’s recent request for feedback on the formation of certain IFISA rules, pertaining to disclosure standards and the mechanism of advisory services. The next five months will be crucial.
Now in its sixth year, the AltFi London Summit returns on 18th March 2019 to 155 Bishopsgate. Last year proved to be a crucial turning point for the key players building the future of finance. Leading platforms launched oversubscribed IPOs, digital banks proliferated and mainstream financial institutions started their own disruptive propositions. With 2019 certain to be another landmark year, more questions will be asked by regulators with investor interest in disruption also poised for more rapid growth.