Peer-to-peer (P2P) platforms have the potential to soar into mainstream lending after the government proposed the allowance for tax-free savings accounts with P2P investments..
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div>Peer-to-peer (P2P) platforms have the potential to soar into mainstream lending after the government proposed the allowance for tax-free savings accounts with P2P investments.
With the current P2P lending sector at a size of just under £1 billion, analysts at broker, Liberum, said that they forecast the P2P industry could jump in size to £45 billion within the next 10 years.
The government proposed in the annual budget to let tax-free Individual Savings Accounts (ISAs) be used with P2P investments, after the Chancellor, George Osborne, stated that ISA allowances will be nearly tripled to £15,000 a year.
James Meekings, Co-Founder of Funding Circle, said: "I think it will be a tipping point."
James added: "Tax breaks allow people to lend to slightly more risky businesses... the challenges are the details of how it works with existing industry."
The idea is that investors will help advance credit to businesses who are unable to get the bank loans and will, in exchange, give savers an alternative platform to save money at much better rates.
Funding Circle gives an average rate return of 6.1 per cent, which compared to an average cash ISA at 1.75 per cent shows why low-risk P2P lending could skyrocket in the next decade.
P2P lenders could also be allowed to offer their own ISAs to compete with mainstream cash lenders such as Hargreaves Lansdown.
"P2P isn't ready to go into ISAs yet," said Danny Cox, Head of Financial Planning at Hargreaves Lansdown. "In its current form, it's a relatively small and immature market, whereas we're working with billions of pounds."
Danny added: "Being an unregulated product in a regulated world, we need to see what the products are like when they come out the other side.”
Funds that are lent through P2P online platforms are not protected by the Financial Services Compensation Scheme (FSCS). The FCA plans to make a variety of changes in April, including the implementation of some new industry rules, to help regulate the P2P market.
This means that P2P firms will have to follow business conduct rules, including client money protection and dispute resolution. This could also increase potential investors as regulating the P2P platforms would reduce financial risks.
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