The government has finally published its much anticipated consultation on how peer-to-peer (P2P) loans will be included within Individual Savings Accounts (ISAs).
It has been estimated that ISA inclusion will see the sector grow from £2bn to £45bn over the next few years. This is a tipping point for the UK P2P market. It highlights the industry’s shift from niche into mainstream.
It is perhaps more significant than July’s increase in the ISA allowance to £15,000. Why? Because it adds a new alternative to the financial landscape. It proposes a new asset class.
David Gauke, the Financial Secretary to the Treasury, said:
We want to support savers at all stages of their life and make sure they have greater flexibility and choice over how they invest and access their savings.
P2P lending is an exciting, innovative new sector and it’s right that investors who want to lend money via P2P platforms should be able to hold these loans in their ISA alongside more traditional investments.
Rhydian Lewis, Founder and CEO, RateSetter said:
We are obviously delighted that the Consultation has been launched. The government has stated that it wants to encourage greater competition and choice in financial services and allowing peer-to-peer into ISAs is part of that. The UK is a leader in peer-to-peer lending and inclusion in ISAs will open up the benefits to more British savers and borrowers.
More choice in a market of stagnant rates
The government wants to encourage greater competition in financial services. At RateSetter, we welcome this. We were created with the retail saver in mind to return more value to the customer.
Allowing P2P loans to be held in ISAs also supports the government’s aim to diversify the different sources of finance that are available to borrowers by encouraging the growth of the P2P lending sector.
By allowing the higher rates of interest on offer to be shielded from tax, the inclusion of P2P will breathe new life into ISAs. And the appetite is certainly there: research we carried out with Populus earlier this year revealed that two-thirds of people will consider trying P2P when it is ISA-able.
A “Third ISA”?
Options include P2P loans being held within the existing Stocks & Shares ISA or the exciting idea of a new third type of ISA – a P2P ISA.
We believe that giving savers more choice must be at the heart of this decision. As such, we have led the way in promoting a ‘Third ISA’.
It is great news that government is considering a third ISA category to open up a new choice to the polarised options of cash or investments – providing that missing link between low returns and high risk.
This bold new product would be a healthy middle ground, especially in light of the recent volatility in the stock market.
The landmark consultation closes on 12 December 2014. You can read the consultation here. I would encourage anyone interested in getting more from their money to take a look.
Once it has closed, the government will review responses and publish a summary document. Taking all views into account, the necessary legislation will be amended to pave the way for P2P to be included in ISAs.