Lending Works IFISA Launch
8 February saw Lending Works launch its Innovative Finance ISA (IFISA), the first of the major peer-to-peer (P2P) players to offer the product. It was also the first member of the industry-body Peer-to-Peer Finance Association to launch an IFISA.
This duet of ISAs and peer-to-peer lending was government-incentivised, announced by George Osborne in the 2015 summer budget, whereby a tax-free wrapper was afforded to peer-to-peer investments. This brought the once considered ‘fringe’ peer-to-peer format, further into the mainstream.
Leading The Charge
This is another first for Lending Works who were the first peer-to-peer lending platform to have insurance protecting lenders against certain borrower default risks. The firm received full authorisation from the Financial Conduct Authority (FCA) in October 2016 after having operated on an interim approval since the regulator took over consumer credit regulation from the Office of Fair Trading. In the same month, it received the required ISA Manager approval from Her Majesty’s Revenue and Customs (HMRC) for the ISA manager licence. The company confirmed to us that in the intervening months from authorisation to launch, its tech, design and compliance teams continued to develop the product’s customer experience, including a website redesign.
The firm’s IFISA allows customers to split up to £20,000 (in line with Treasury rules) across cash, stocks and shares, with no cap on any fund transfers from existing ISAs into an IFISA. It has a current rate of 4.00 per cent for investment of up to three years, 4.70 per cent for up to five years.
A source from the company informed InnovativeFinanceISA.org.uk that the IFISA hit its £1m limit within just 24 hours of its launch.
“In fact, such was the emphatic response from lenders that we actually received more than £2 million within the 24 hours after we launched the ISA – including ISA transfers,” said the source.
The firm also confirmed to us that its aim at this stage was to re-open to new investors next week, adding:
“We are conscious that an overflow of ISA capital could lead to longer matching times or a suppression of rates, hence our decision to accept ISA monies in fixed tranches. However, owing to increasing volumes of loan origination, we expect to re-open the window of opportunity for ISA applications within the next week or so.”
The IFISA Horizon
Lending Works’ announcement is a positive step towards the rise of the IFISA. Future developments in the world of the IFISAs include:
- The government’s 2016 March budget announced that the ISA allowance is to rise from £15,240 to £20,000 as of April this year
- Research agency 4thWay predicts that at least 11 more IFISAs will be launched before the end of 2017, taking the total up to 16
- As it stands, at least 23 firms are now approved to offer IFISAs. However, some of the major market players: Ratesetter, Funding Circle and Zopa, are still awaiting approval
- Zopa and RateSetter’s IFISA products will have the same rates as their other products whilst Funding Circle remains tight lipped whilst it awaits full authorisation
- LendingCrowd is expected to be the next peer-to-peer platform to launch an IFISA; the company announced it could be as soon as Valentine’s Day
- Peer-to-peer tech provider Goji will build and integrate a fully managed IFISA service for four IFISA providers who received full FCA and HMRC authorisation in recent weeks
The IFISA, whilst laden with risk, is expected to spark considerable growth in the peer-to-peer sector as new products are cultivated and demand persists.
Updated: Tuesday, April 2nd, 2019