Investor Case Study

Investor Case Study

Let's take a closer, more granular look at how you can invest and benefit through peer-to-peer lending.

Take Timothy Francis, a 61-year-old technology consultant from Surrey, and full-time Zopa investor. Tim began lending small amounts - £1,000 - in 2005 upon the arrival of peer-to-peer lending into the world. Having experience in Stocks & Shares investing in the 90s and an understanding of financial markets, P2P lending was an attractive proposition for his investment portfolio. Tim did a bit of research, tested the waters, started to profit and began lending more.

P2P occupies a percentage of his investment portfolio - £4,500 currently invested in Zopa, but P2P Lending offers something many other asset classes don’t offer, a borrowing arm. Tim borrowed through Zopa as well for financial management purposes, having his £6,000 loan application approved quickly. He commented on the risk/reward element of peer-to-peer lending:

Tim our Zopa Investor Attests:

Over the years, I have taken some losses - totalling a few hundred pounds - but this was well within my risk profile, and this has been far outweighed by the fact that I've earned an average rate of 6.5% over the 10 years I've been a customer.

Social impact of peer-to-peer lending

There are several other things you may wish to consider before lending money, such as the nature of the loans the platform makes. Are their loans more socially or ethically beneficial than other platforms? Some alternative finance companies specialise in ethical investments. Abundance Generation and Triodos Bank lend to energy saving, renewable and sustainable projects, but issue debt slightly differently.

P2P lending operates in the same vein, issuing products that have social and eco-friendly benefits. Assetz Capital has a Green Energy Income Account, for example, lending to energy efficient projects in the UK.

With peer-to-peer lending, you are guaranteed that your money is helping another individual or small business in need of funding. Make money by helping somebody else? Too good to be true?

Tim our Zopa investor attests:

When I heard about this new proposition, I did a bit of research and decided to try it. I liked the fact it had an air of social awareness about it.

Lending Examples

Lending Criteria (product/loan dependent)

Lender Products Interest rate range (per annum) Term Security
Zopa P2P 3-6.5% up to 5 years* Safeguard Trust, diversified loan
RateSetter P2P/P2B (peer-to-peer/peer-to-business) 2-6% (can select own rate)* 1 month - 5 years* Provision fund, strict lending criteria, diversified loan
Wellesley & Co P2B, Retail Bond and Mini-Bond 4-7%* 18 months to 5 years* Credit committee, asset security, provision fund, diversified loan*
Table: an example of product range in P2P lending, product features may have changed since publication

Regulators take notice

When investing, in any asset class, you should always exercise caution, which is even more advisable for first timers. The fact of the matter is, regulatory bodies are equally cautious, this is why the FCA regulated the industry and why the P2P platforms enforce very strict processes to minimise defaults (currently sub 2% for the industry 2016) and why the government has included P2P lending in their 2015 budget, introducing the tax efficient Innovative Finance ISA (IFISA) as of 2016.

Innovative Finance ISA (IFISA)

The Innovative Finance ISA (IFISA) will allow UK savers and investors to hold their peer-to-peer investments within an ISA wrapper, providing tax efficiency on their P2P investments and including them as part of their tax-free portfolio, a huge step for the industry.

From April 2016, P2P investors will be able to invest in peer-to-peer products through their IFISA earning interest tax-free, up to the annual ISA allowance of £15,240 for 2016.

A recent change to the Innovative Finance ISA was announced by the HMRC prior to its April 2016 release. Retail savers and investors will now be able to store multiple peer-to-peer products, from multiple platforms, in a single IFISA issued by a single ISA Provider. Be conscious that ISA have set forth strict rules around ISAs and there have been adaptations to suit the marketplace lending industry.