The Innovative Finance ISA (IFISA) is changing this year. From 5 April, the IFISA tax wrapper will be extended to include long-term asset funds (LTAFs) and open-ended property funds for the first time. Investors will also be able to open multiple IFISAs per year, and partial transfers will be allowed between IFISA providers.
So what does this mean for Loanpad’s IFISA holders?
In short, nothing will change with your account unless you want it to. Any money which you have already invested in your IFISA account will remain invested, and your interest will continue to accrue as usual. For the 2024/25 tax year, you can choose to invest up to £20,000 in your Loanpad IFISA. However, this year you will have more IFISA options than ever before.
How is the IFISA changing?
The new IFISA rules have been designed to expand rather than limit the IFISA. If you have multiple IFISA accounts, from 5 April 2024 you can choose to reshuffle your portfolio and move money from one account to another. You can also open up additional IFISA accounts with other IFISA providers, just as long as you are careful not to invest more than your £20,000 tax-free annual ISA allowance.
You will also be able to use the IFISA wrapper to invest in LTAFs and open-ended property funds. LTAFs are regulated investment vehicles which allow professional and retail investors to invest in illiquid private market assets such as credit. Meanwhile, open-ended property funds are much more liquid and offer investor exposure to the property market.
Due diligence
As of 5 April, the tax year will restart, and your £20,000 annual ISA limit will be reset. With so much more choice in the IFISA market, it is important to ensure that you do not exceed this £20,000 limit across your portfolio of ISAs. Some IFISA managers have relatively high minimum investment thresholds of £1,000 or more, so this makes it all the more necessary to choose your IFISAs wisely to minimise the risk of losses.
No IFISA investment is protected under the Financial Services Compensation Scheme (FSCS), so there is no safety net if any loans go into default. All IFISA investors should be aware that there is a risk of losing some of their initial investment if the borrower is unable to keep up with their loan repayments. While this risk can never be eliminated, it can be managed.
Carry out your own thorough due diligence before making any new investment, and make sure you understand the risks involved. While past performance is no indication of future success, it is useful to check the default rate of a P2P platform or LTAF manager, as well as any publicly-available customer reviews and recent news stories.
Make sure you are comfortable with your IFISA manager before placing any money with them, and consider diversifying your investment by spreading your money across a range of loans, rather than backing just one or two projects.
Finally, educate yourself on the nature of the loans that you are backing, and any security that is in place. Check in with your loan portfolio on a regular basis and get in touch with your IFISA provider if you have any questions or concerns.
Peer-to-peer lending platforms earn their money in a few different ways. Many platforms make their income by taking an arrangement fee from the borrower when they originate a new loan. Others prefer to take a percentage of the loan payments, while some earn money through some combination of both.
| 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. |
Loanpad’s success is testament to the hard work and expertise of the people who operate the platform behind the scenes. In this new blog series, we meet the team and learn more about their roles. First up is Neil Maurice, Chief Operating and Finance Officer.
- What did you do before Loanpad?
I started my career back in 2004 as an equity banker at UBS Investment Bank. I then qualified as a Chartered Accountant at BDO LLP in London. I spent about ten years at BDO in their financial services team specialising in a range of audit and consultancy work. As part of that role, I was part of the leadership team on a large remediation project at Barclays Bank focusing on the mis-selling of interest rate derivatives. This involved leading teams assessing whether a mis-sale had occurred and working to calculate any redress due.
I then moved to another multinational consultancy, Duff & Phelps and I was there for a couple of years focusing on a number of risk and regulatory projects for entities regulated by the Financial Conduct Authority (FCA). Then in 2018 I decided to branch out and that’s when I joined Loanpad.
- What brought you to Loanpad?
Louis Schwartz, Chief Executive of Loanpad and I have known each other for more than 20 years, so we’ve always had a link. Every so often he would reach out and ask my opinion on business matters because I have a background on the advisory side of FCA regulated firms, as well as an overall understanding of the way the business works.
Louis needed someone who could effectively fill several senior roles within the company – I filled the criteria and I was ready for a change.
Joining an exciting startup is great fun. You’re forming it, you’re nurturing it, you’re deciding which way they go, what you pull, what you push. Its great fun, but its not for everyone. There’s no boredom.
- What is your day-to-day role in the company?
My formal title is Chief Operating and Finance Officer, which means the management of the day-to-day teams, loan underwriting, regulatory compliance, day-to-day operations, and finances fall under my purview.
- To what extent has the P2P lending market changed since Loanpad was launched?
Massively. When Loanpad was being conceived, P2P lending was a very exciting concept, in the industry. It was decentralizing finance and giving retail investors exposure to an asset class which historically only banks and large finance houses were able to have exposure to. And I think that as a concept, it was phenomenal and still is phenomenal. Why should the retail investor with £5,000 not be able to lend money on a piece of real estate, but a bank is able to do it?
Logically, the concept of P2P finance is a great idea and a great concept. Unfortunately, there were a number of P2P failures in the early days.
This resulted in more regulation around areas such as disclosure, financial promotions and senior manager accountability. The level of regulation has massively gone up, and this has made the sector less attractive for new entrants. The result is that a lot of players have looked to leave, and fewer have looked to enter.
The market has shrunk for certain, but I don’t think that’s a bad thing. It means that the good actors remain.
- What are Loanpad’s core values?
Trust, integrity, and morals. We invest every single penny of money as if it’s our grandmothers’. We believe in being open, transparent, highly ethical, and highly moral in the way that we act. And our main focus is always trying to ensure that investors get their money back. We don’t want to be in a position of losing people’s money. We can’t guarantee it, but everything we do is focused on getting investors money back or making sure we invest it so we expect to get it back. We don’t look for the fast buck, we don’t look for the high arrangement fees on a loan just so we can make the loan and get it out the door. We look at the security needed in order to recover the capital.
- How has the business evolved to meet customer demand?
We constantly look for ways to make the Loanpad experience simple, efficient and friendly, whilst of course meeting all regulatory requirements on a disclosure basis. We don’t believe in complicated interfaces, we don’t believe in having to press 95 buttons to get anywhere. That’s just not how we want to be.
We look to constantly react to our clients’ needs, and to make incremental improvements on our site and functionality to meet customer demand. We prioritise our customer care, and make sure that we respond to all queries in a timely manner.
- What are your plans and ambitions for 2024?
We are hoping to put out a large software release in 2024. Investors may not see a huge change on the front end of it, but behind the scenes it’s a rebuild of the back end. That’s going to mean that we’re going to be able to put through new features and new products much more quickly than we have done in the past.
I’d also like to launch an Apple Store and Google Play Store apps this year. Towards the end of the year, I’d like to improve our data transparency so we can actually show better graphics of our loan book and the splits between different lending partners and different loan types.
But beyond all of that, the big focus of 2024 is continue doing what we’re doing now and continue to serve our investors. We’re in difficult macroeconomic conditions, be under no illusion. It’s not an easy market and we just need to be laser focused on delivering over and over again in what we’re doing.
| 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 todayPeer-to-peer lending platforms earn their money in a few different ways. Many platforms make their income by taking an arrangement fee from the borrower when they originate a new loan. Others prefer to take a percentage of the loan payments, while some earn money through some combination of both.
Loanpad does not charge any arrangement fees to the Borrower. Instead, the platform makes nearly all its revenue by taking a share of the interest payments made on each loan. On some loans Loanpad may charge a small administration fee to the lending partner.
“We earn money right alongside our investors,” explains Neil Maurice, Chief Operating and Finance Officer at Loanpad.
“We think that makes us more sustainable as a business, as it means that we can continue to make money as long as our loan book is active.”
Why doesn’t Loanpad generate more of its revenue from fees?
Arrangement fees are paid once at the start of the loan, and that’s it. Unless the loan is refinanced, the platform will not earn any more money from it after it has been funded. This may encourage some P2P platforms and unregulated lenders to increase their lending activity which could come at the cost of effective due diligence.
“The issue we see with that model is it could encourage a lender to want to lend now,” says Maurice.
“There will be a subconscious view that you need to lend in order to make money. So if your entire revenue is built off arrangement fees, if you don’t lend, you don’t make money; you can’t pay salaries and you can’t keep the lights on.
“If the loan goes sour in six months time and goes into default, the lender will be able to keep their arrangement fee and the people who will lose out are the investors.”
Loanpad looks at things differently. More than 95 per cent of the company’s revenue comes from its net interest margin.
“For example, if we lend out a loan at eight per cent, we will pay our investors six per cent and we will take that two per cent in the middle,” explains Maurice.
“The result of that is that we don’t have an incentive to go into a deal just to make money up front. We only make money throughout the whole term of the loan, along with every other retail investor. So if a loan goes bad after three months and the borrower stops paying, Loanpad also stops receiving its interest.
“Our interests are completely aligned with our investors. We only make money when they make money.”
How much money does Loanpad make?
Loanpad has been profitable monthly since mid-2021. Whilst past performance is no guarantee of future success, Loanpad’s track record demonstrates the prudent management of the business to date, and its ability to generate profits through the interest earned on its loans.
“We have been profitable for a number of years,” says Maurice. “Because of our net interest margin structure, our modelling shows that Loanpad will continue to be profitable even under a wind-down scenario. We think our investors appreciate this as they get additional reassurance from knowing that their money is being invested with a company which has strong financials.”
| 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. |
Since Loanpad opened for business in late 2018, the platform has grown to a current loanbook size of over £80m with zero capital losses to date. As the platform aims to reach at least the £100m mark by the end of 2024, it seems like a good time to pull the curtain back and share a little bit of the Loanpad growth story.
How did Loanpad grow its loan book to over £80m in just five years?
The main driver of the platform’s growth has been word of mouth. Loanpad was founded by Louis Schwartz in 2015 and launched in 2018 after Neil Maurice joined the firm. Their objective was to build a business that was simple to use with a product that people wanted, that could provide a risk-adjusted return.
“It caught on,” says Maurice. “Word of mouth picked up. And as a result of that, people just came back to us over and over again, and they told their friends and families.
“It all goes back to our values, that by delivering and by honouring our commitments and by responding to people in an efficient, honest and open manner, it gave our investors comfort and trust in our business and we built it from that.”
No investor losses to date
It also helps that there have been no investor losses to date. Loanpad has always been careful to communicate the risks as clearly as possible to all potential investors, but the platform has also worked hard to mitigate the risk of capital losses. All Loanpad loans are secured against UK property, with an average loan-to-value of 41 per cent. This means that even if the property value somehow fell by 59 per cent, it could still be sold to repay investor capital. It is worth noting that during the global financial crisis of 2007-2008, UK-based property values fell by an average of 20 per cent.
In practice, the majority of Loanpad loans are unlikely to reach the stage where the underlying asset has to be sold through a receivership process. Loanpad works with a limited number of lending partners who have been thoroughly vetted by the firm. Throughout the duration of the loan, Loanpad is in regular communication with these lending partners to ensure that the borrowers are meeting certain milestones. Any possible issues which could impact the loan’s repayment can be flagged early, allowing the platform to take measures to protect investor capital and interest. Investors are also updated regularly on the progress of every loan, so that they can keep track of their portfolio as closely as they like.
£100m milestone
Loanpad’s ethos has allowed the platform to grow organically and steadily over the past five years, despite the changing P2P lending landscape. Increased regulation has led a number of competitors to leave the market, and many of their investors have opted to move their money into Loanpad. This in turn has allowed Loanpad to fund more loans and further expand its loan book.
It has also become easier to originate loans over time, due to the expertise that Loanpad has built up and the relationships that the company has developed with its lending partners. That means that there are more investors, funding more loans than ever before. But for Schwartz and Maurice, it is important that this growth continues to be organic and reflective of the company’s values.
“If we wanted to be a £2bn loan book in a year, it would risk the integrity of the business,” says Maurice. “That’s not what we want to do.”
“Our investors love the fact that our customer support is so responsive, they like the diversification of the portfolio, they like the fact that they can see the property and they like that we update them every 90 or 120 days on every single deal.”
“That sense of community only makes our platform stronger.”
| 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. |