UK’s Investment Platform easyMoney Explains Differences between IFISA and P2P Lending

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UK’s easyMoney, the investment platform from Sir Stelios Haji-Ioannou’s easy family of brands that claims that it has “never lost a penny on its loans,” notes that sometimes, the world of finance can appear to be quite complicated. In their opinion, this can also be “equally off-putting.”

Because of these potential issues, the easyMoney team has put together an easy-to-follow guide to the key differences between an IFISA and “regular” peer-to-peer (P2P) lending options. There are some significant “distinctions” which they believe are “worth knowing” about.

easyMoney is a P2P lending platform, allowing people to invest in an Innovative Finance Individual Savings Account (IFISA). These have been around since 2016/17, and the money that you lend (in easyMoney’s case to borrowers in the property sector) accrues interest, which gets paid to you on a “monthly basis tax-free,” the company explains. So, this would be peer-to-peer lending, easyMoney clarifies.

According to easyMoney:

“Never the most innovative or popular of institutions, [banks are] not always easy to qualify for a loan, especially in the last year or so due to the difficulties caused by Covid.”

Step forward peer-to-peer lending, easyMoney adds, while claiming it has become a “popular way to get funding without applying to the bank.” As noted by the company, peer to peer sites essentially operate as online marketplaces, serving as financial “matchmakers” in order to bring together businesses and individuals (or even groups of individuals).

Then there are those who wish to lend, and those who want to borrow funds, so it’s an “advance win-win situation – or it could be,” easyMoney adds. The company confirms that the very first website P2P platform was introduced back in 2005 and it was a “game-changing idea and pretty niche at the time.”

But here’s a quick fact: people have been lending to and borrowing from each other “well before that.” Here’s one account of P2P lending in 18th Century France that easyMoney shared.

These markets would function typically in “small circles, where people living in neighboring areas exchanged goods and cash for deferred payments, often being connected to more than individual at any one time.”

With easyMoney, the funds you lend are “divided automatically between several borrowers, enabling you to diversify your portfolio and mitigate risk,” the company explains.

To get started, you just have to open an account, select a product according to the amount you want to invest, and simply start earning interest. At easyMoney, they pay the interest every month and also give their clients the chance to “take advantage of [their] compound interest.”

As noted by easyMoney:

“Any interest that you earn through P2P lending will be seen as income. HMRC will want to know about it. That is, it will be taxable. Your personal savings allowance is however considered here, but if you’re a higher rate taxpayer, this amount is only £500. …Especially those from easyMoney, as our rates can be as high as 8% – TAX-FREE.”

easyMoney also noted that risk-free investments do not exist, even though many of us “would like them to.” In real-life scenarios, your borrowers can default. Likewise, if your loan is repaid late, or early, “you could make less of a profit than you’d hoped.”

The company also mentioned:

“To mitigate risk, easyMoney takes a conservative approach. Each loan is assessed individually, with a weighted risk matrix based on long experience and expertise in property and lending. We allocate a score to each loan from A to J; A being the lowest and J the highest. Generally, we lend only against those that score A, B or C. Additionally, we secure every loan on our platform with a legal charge – meaning that should a borrower default, we will try to sell their property, although recovering funds could be affected by any downturns in the property market.”

easyMoney’s conservative methodology “reflects the sums” they lend out to borrowers:

  • On bridge loans “up to 75% of a property’s value”
  • On development loans, “a maximum of 75% of the initial value of the property, plus up to 100% of development costs.” Taken together, “our total lending is capped at 70% of the anticipated Gross Development Value (that is, the price that the value considers that the developed property will sell for).”

Peer to peer lending isn’t covered by the Financial Services Compensation Scheme, even though they have to be regulated by the UK’s Financial Conduct Authority (FCA) in order to trade, easyMoney clarified.

As noted by easyMoney, when you choose an Innovative Finance ISA with the company, then the P2P lending concept is “essentially the same,” but with a few key differences:

At easyMoney, they offer a “diversified” portfolio (as with other P2P lending platforms) but your selected borrower or borrowers “will be businesses within the property sector and your loan backed by UK property.”

They covered interest rates, however, with easyMoney, you could, “depending on how much you invest, reap great rewards, with interest returns of up to 8%,” the company notes while emphasizing that with your allowance of £20,000 per annum “the taxman is left out of the picture.”

The easyMoney team further noted that the interest that you get on a monthly basis from them “will be completely tax-free.”

The company added:

“easyMoney’s IFISa is flexible. As an investor, you have the opportunity and freedom to withdraw your money, and importantly – to put it back again without affecting your £20,000 annual allowance.”

In order to open an easyMoney IFISA you’ll “need to be a UK resident with a UK National Insurance number.” As part of easyMoney’s “transparent” approach, users must know that the IFISA is “not covered by the FSCS, but that we are fully regulated by the FCA.”

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