Investors opt for P2P as cash popularity wanes

Investors opt for P2P as cash popularity wanes

Investors are increasingly retreating from traditional cash Individual Savings Accounts (Isa) in favour of the recently launched Innovative Finance Isa (Ifisa), according to a recent poll.

Ifisas permit savers to gain interest from peer-to-peer lending platforms tax-free in a similar way to cash Isas, but typically at higher rates.

Figures from the Assetz Capital barometer show the percentage of investors in cash Isas stood at 37 per cent at the end of last year’s Isa season, down from 52 per cent in the first quarter of 2018.

Stocks and Shares Isas were embraced by 61 per cent of investors in the second quarter, and Ifisas were almost as popular, with 60 per cent investing in them.

Alex Brown, a wealth management director at Mattioli Woods, said he was not surprised at the trend, given the growing dissatisfaction with interest levels on cash Isas.

He said: "If you look at where base rates have been for the last decade at sub one per cent, I’m not surprised we are seeing a gradual movement away.

“There has been a fundamental shift in investing. Cash used to be a safe house at 5 per cent but it can no longer be considered an ‘investment.’

"At sub one percent, no one would say you have got an investment return because inflation is around 3 per cent now."

Brown said that while rising interest in peer-to-peer backed Ifisas was an understandable consequence of market conditions, he warned returns from these vehicles had "no precedent for downside".

He explained: "Naturally, people are going ‘if I can’t do cash, where am I going - peer to peer lending, I see its attraction, but I feel it is slightly dangerous.

"If you look at equity markets, they have been around so long that people appreciate they go down as well as up.

"The idea of loan finance, returning 7 to 8 per cent per annum without the volatility of equities is fantastic. The issue is that for a lot of peer to peer lending, markets have been good - you haven’t seen a crash that you have experienced with equity markets because P2P is quite a new investment."

Jatin Ondhia, chief executive officer of Shojin Property Partners, agreed that investors are looking for better returns on their investments.

He said: "Since we launched our variety mini bonds last month, they have been popular with investors. Even the best cash Isa does not compare favourably with the targeted returns that the Shojin mini bonds offer."