OctopusAug 9 2017

Octopus Innovative Finance Isa targets 4% return

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Octopus Innovative Finance Isa targets 4% return

Octopus Investments is bringing an Innovative Finance Isa product to market this week, and targeting a return of 4 per cent a year after tax.

Sam Handfield-Jones, head of Octopus Choice, said: “Over the last year, financial advisers and their clients have shown tremendous appetite for this type of solution.

"At a time of low interest rates, rising inflation and ever-present stock market volatility, providing clients with an alternative option for their investments may have never been more important or valuable.

“We are thrilled that we can now help advisers include Octopus Choice within their clients’ Isa planning and we expect today’s launch to bolster the impressive demand we have already witnessed for this product.”

Octopus Choice was launched by Octopus Investments in consultation with financial advisers in April 2016, to coincide with the FCA’s decision to broaden the scope of advisers’ permissions to include peer to peer lending.

Since then, it has facilitated more than £130m of borrowing across nearly 200 deals.

Every loan is secured against property at what Octopus described as "conservative loan-to-values (currently averaging 60 per cent)".

Octopus invests five per cent in each loan at first loss, meaning investors can get their initial investment back first, as well as receive any interest due to them before Octopus receives any.

Jason Hollands, managing director for business development at Tilney, said: “If you’re going to invest in peer-to-peer loans, and are subject to the higher or additional rates of income tax then the ability to do this through a tax efficient Isa wrapper is clearly advantageous.

"We are generally wary of peer to peer as this type of asset class has yet to be really tested in stressed market conditions but in this respect the Octopus Choice product does provide some comfort because loans are secured against property assets with a maximum loan-to-value ratio of 75 per cent.

"This means in the event of a default, Octopus can seek to take ownership of the asset and sell it. This is not a capital guarantee but it provides some downside mitigation.

“While the 4 per cent yield is certainly appealing in the current ultra-low interest rate environment, it is important to understand that peer to peer is not covered by the Financial Services Compensation Scheme, instant access cannot be guaranteed and it may take time to achieve diversification across a portfolio of loans, especially while the product grows.”