Unnecessary taxation can erode your hard-earned investment returns, which is why 22.3m UK savers and investors chose to shelter their money in an ISA during the 2023-24 tax year1.
While the Cash ISA is best for risk-averse savers, and the Stocks & Shares ISA is favoured by traditional investors; the Innovative Finance ISA (IFISA) is arguably the best tax-efficient option for property investors and / or those seeking to diversify their investments.
What is an Innovative Finance ISA?
Launched in 2016, the IFISA was initially intended to allow investors in P2P loans and crowdfunding platforms a way of shielding their returns within a tax-free wrapper. More recently, the Innovative Finance ISA remit has been extended to include long term asset funds (LTAFs) and open-ended property funds as well.
Up to £20,000 can be invested in IFISA accounts during each financial year, and investors can hold multiple Innovative Finance ISAs simultaneously. Unlike Cash ISAs, IFISAs are not covered by the Financial Services Compensation Scheme (FSCS) and it is important to note that capital may be at risk in the event of a borrower default. However, good Innovative Finance ISA managers will ensure that they have strong risk management policies in place to minimise the risk of default. For example, Loanpad takes property as collateral on every loan, with an average LTV of 45.47%.
All ISAs share one big advantage: returns are completely tax-free. Interest earned within an IFISA is not subject to income tax, and any capital gains are also shielded from HMRC.
For example, if you invest £10,000 in a property-backed Innovative Finance ISA paying 6% in annual returns, you would earn £600 in interest each year, and you can keep every penny of these earnings without any tax deductions. If this interest is reinvested, you can also benefit from the effects of compound interest, which can help you to build wealth more quickly.
Loanpad offers two ISA-eligible accounts, the ISA Classic and the ISA Premium. These accounts are currently targeting returns of 5% and 6%, respectively. The ISA Classic allows for daily access so that investors can make withdrawals when needed. The ISA Premium account requires 60 days’ notice before any withdrawals are made subject to liquidity.
How to use the IFISA in property-backed lending
Loanpad’s Innovative Finance ISA accounts allow investors to back British properties and earn interest on property-backed loans. Every loan is secured against physical property which can be sold in the event of a borrower default, thereby providing an additional layer of security for investors.
This is one of the most direct ways to access diversified property market returns. Each investment is spread across a number of property loans, which reduces the risks associated with a default and offers exposure to different properties in a variety of neighbourhoods.
To access the benefits of property-backed ISAs, simply choose a regulated P2P property lending platform such as Loanpad, open a new account, deposit your funds and start investing.
All new investors must complete an appropriateness test to ensure that they are aware of the risks involved in P2P lending. While past performance is no indication of future success, Loanpad has maintained a zero-capital default record to date due to the platform’s risk-averse strategy and strong underwriting due diligence.
Get in touch with us today to learn more about Loanpad’s Innovative Finance ISA and how property-backed loans work.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
Property-backed peer-to-peer lending has become an increasingly prominent segment of the P2P lending market in recent years. But what is it exactly?
In short, property-backed P2P lending refers to P2P loans which are secured by property. That property might be a residential development, commercial buildings, buy-to-let portfolios, or land with planning permission.
On these types of secured loans, the property acts as collateral. If a borrower defaults, the platform has the legal right to recover funds through the sale of the property itself. When assessing the value of property collateral, P2P lending platforms will assign a Loan-to-Value (LTV) which effectively states how much the platform is prepared to lend against the overall value of the property. As of September 2025, Loanpad’s average LTV was 45.04%. This means that in the event of a borrower default, the value of the property would have to fall by more than 55% before Loanpad’s share is impacted.
This collateral is what makes property-backed P2P lending different to unsecured loans. It provides investors with an extra layer of protection, although, of course, it doesn’t remove risk entirely.
How does property-backed lending work?
When a property developer or landlord applies for finance, they will approach a P2P lender with their plans. The platform then assesses the deal, taking into consideration elements such as the borrower’s track record, the property’s value, and the LTV.
If the platform is satisfied with the borrower’s credentials and the property collateral, the secured loan is listed on the platform. Investors can then choose to fund part of the secured loan.
For the duration of the loan’s term, investors will earn interest on their investment. This is typically paid monthly, quarterly or annually, depending on the platform.
At the end of the term time, the secured loan is repaid in full, and the investors can recoup their capital investment and either withdraw their money or use it to invest in another loan.
If the borrower fails to repay, the platform can enforce its charge on the property to recover investors’ funds.
The benefits of property-backed lending
For borrowers, there are a number of benefits associated with using a P2P lending platform to finance their next project.
- Speed. Traditional banks can take weeks or even months to approve a loan, whereas property-backed P2P lending platforms are often quicker.
- Flexibility. P2P lenders may consider projects that high street lenders view as too risky or unconventional.
- Short-term finance. P2P lenders and lending platforms are more comfortable offering secured loans with a shorter duration, of say six to 12 months, which suits developers who are bridging a funding gap.
For investors, property-backed P2P loans can offer attractive returns, with the reassurance of underlying security in case the borrower defaults.
Property-backed P2P lending also offers a way for retail investors to participate in the property market without directly owning or managing property. By lending to developers and landlords via online platforms, investors can earn interest while benefiting from the security of property as collateral.
While property-backed P2P lending is not risk free, it is possible to manage risk by choosing a reliable and regulated property-backed lending platform, and by carrying out your own due diligence before investing. This might involve checking the loan terms, the LTV, and the borrowers’ credentials on Companies House.
Done correctly, property-backed P2P lending can diversify your investment portfolio and help to support the British property industry, while earning competitive returns.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
P2P INSIDER
Supercharge your understanding of Peer to Peer investing todayIf you invest in any form of property loan, you may be familiar with the LTV acronym. LTV stands for Loan-to-Value, and it is one of the most important concepts to get to grips with as a property investor.
What is Loan-to-Value (LTV)?
Simply put, LTV is the ratio between the amount of money being borrowed and the value of the property securing that loan.
For example, if a borrower wants to borrow £500,000 to finance a property development, and the property securing the loan is valued at £1m, the LTV would be 50%.
LTV is used by every property lender and property lending platform as a way of assessing the security behind each loan. It is particularly important when property is being used as collateral against the overall loan. If the borrower is unable to keep up with their repayment schedule and all other efforts to refinance or recover the loan have failed, the lender can make a claim the collateral and sell it in order to recoup investor capital.
It is worth noting that there is a difference between a first charge and a second charge when it comes to property collateral.
Lenders who have a first charge on a property will be first in line for repayment whenever the property has been sold. Lenders with a second charge claim will be paid second, which effectively increases the risk as there is a possibility that there may not be enough money left to pay everyone.
Loanpad always takes a first charge on every property that is taken as security against each loan alongside our lending partners with Loanpad ranking above our lending partners upon repayment. This allows us to reduce risk for our investors, by ensuring that they are first in the queue should a loan default lead to a collateral sale.
Why does LTV matter to investors?
For retail investors in property P2P lending, the LTV figure provides a snapshot of risk.
In theory, the lower the LTV, the lower the risk of capital loss. For example, if a loan has an LTV of 50%, the property would have to fall in value by 50% before investors’ capital is at risk, assuming the platform can recover the property in a default.
If a loan is offered at 80% LTV, there is less of an equity cushion if things go wrong. Even a modest fall in property prices could impact recovery values.
Essentially, the lower the LTV, the greater the buffer between the loan amount and the underlying security.
LTV in P2P lending
When reviewing any new borrower applications, property lending platforms such as Loanpad will carry out extremely thorough due diligence to ensure that every borrower is creditworthy and that the underlying collateral has value.
In order to minimise risk to our investors, we keep our LTVs very low. As of September 2025, our average LTV was just 45.04%. This means that a property would have to decline in value by more than 54.96% before our collateral is impacted. As a result of our conservative LTVs and strong due diligence process, no investor has ever made a capital loss with Loanpad to date.
LTV is one of the simplest yet most powerful indicators of risk in property-backed P2P lending. While it should never be the only factor you consider, it provides a clear benchmark for assessing how much security sits behind your investment.
As a P2P investor, it is very useful to understand and monitor LTV, alongside other factors such as borrower experience, market conditions, and platform due diligence. When you have more knowledge about a loan and its underlying risk, you can make more confident and informed investment choices.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |
The Bank of England has been gradually lowering the base rate for more than a year now, with the pace accelerating over the past six months. Since January 2025, the base rate has gone from 4.75% to 4.25%, with further cuts predicted before the end of the year.
These rate cuts began in 2024 in response to higher rates of inflation, which spiked post-pandemic and due to the war in Ukraine. The idea is that lowering the base rate reduces the cost of borrowing, encouraging more people to spend. For example, mortgage holders might find that they are able to renegotiate a lower rate when their existing term expires, freeing up some extra money in their budgets each month which can be spent on goods and services, thereby boosting the British economy.
So how will further rate cuts impact Loanpad investors?
The base rate is the interest rate at which commercial banks can borrow money from the Bank of England. If the central bank raises the base rate, it directly affects how much banks pay to borrow money, and they may pass this on to their customers by increasing the cost of mortgages and loans.
Unlike banks, peer-to-peer lending platforms such as Loanpad do not borrow money from the Bank of England. Instead, Loanpad’s funds come from its investors and investing partners directly.
While the Bank of England’s rate cuts have an indirect impact on the broader financial ecosystem across the UK, for the P2P sector, this impact is more nuanced.
- Rates
P2P lending platforms can typically offer higher investor returns than traditional savings accounts because they operate outside the traditional banking system. A reduction in the Bank of England’s base rate can drive traditional savings rates lower, making P2P loans potentially more attractive to investors seeking higher returns. However, this could also result in lower interest rates on P2P loans as platforms adjust their offerings in response to cheaper borrowing costs.
- Loan demand
The availability of cheaper financing could see demand for loans soar, and P2P lending platforms could benefit from this boost by receiving more borrower requests. However, P2P lenders such as Loanpad follow very strict due diligence protocols, which means that only the most creditworthy borrowers will be offered funding, no matter how many applicants there may be.
- Search for returns
A lower base rate also means that bank-based savings rates may be reduced. This could send one-time savers seeking out higher-risk investment options such as stocks and shares or P2P loans. The government is currently discussing ways to encourage more savers to become investors, and this campaign could also have the effect of encouraging more people to diversify their finances and consider P2P lending and other alternatives.
At Loanpad, we are currently targeting returns of between 5.1 and 6.1 per cent for our investors, depending on what type of account is chosen. We try to keep our rates ae competitive and consistent as possible.
In the past, when we have changed our rates we have made these changes slowly and gradually, so that our investors can adjust their portfolios and make any necessary changes. We will always communicate any rate changes with our investors clearly, while always ensuring that we continue to deliver the great service that we are known for.
| Don’t invest unless you’re prepared to lose money. This is a high-risk investment. You may not be able to access your money easily and are unlikely to be protected if something goes wrong. Take 2 mins to learn more. |