What are the Average Innovative Finance ISA (IF ISA) Returns?

ISAs are making a comeback. Yes, cash ISA returns are paltry (a quick check on a leading price comparison site will confirm that) but there’s a newer, younger type of ISA that changes that. The Innovative Finance ISAs (IF ISA), also known as a peer to peer lending ISA, was introduced in 2016, and offers significantly higher returns. That’s because it’s based on the premise of investing in peer to peer (P2P) loans, so there’s no intermediary (like a bank or building society) involved and taking a cut of the interest. In addition, P2P lending companies don’t often charge hefty fees. At the moment, IF ISAs account for less than 1% of the UK ISA market. However, with £270 million invested in only its second full tax year of existence (2017/18), it’s showing huge promise. Interest rates on IF ISAs can vary significantly from provider to provider (you can earn anywhere from 3% to 13% and above) compared to something like a cash ISA where the range for interest is much more limited.

A small number of factors contribute to the range in interest rates that you can get from IF ISAs, and they’re worth knowing about before you part with your money.

what are the average Innovative Finance ISA Returns The Type of Loan

You can invest in different types of loan via an IF ISA:

  • Consumer loans: secured or unsecured loans made to individuals
  • Business loans: secured or unsecured loans made to businesses
  • Property loans: secured bridging loans made to property owners or developers

Different platforms will give you different levels of security, so the choice is yours as to how much risk you’re willing to shoulder. Returns might be higher for unsecured consumer and business loans because of the higher level of risk involved. By comparison, property loans are more likely to be secured in some way because property is a tangible asset with an underlying value.

Investment Security

How your investment is secured is quite significant in determining interest rates. If the loan isn’t secured, your capital is arguably more at risk. Other ways that providers can provide worthwhile interest rates while still mitigating risk are:

  • Legal charges over the asset: If there is a legal charge over the funded asset in question, the provider can force the sale of that asset in order to return investor capital, should the borrow default.
  • Diversifying your portfolio: Spreading your capital over several different loans minimises your risk. Some platforms will offer to diversify your investment automatically across their portfolio so that you don’t have to do it yourself.
  • Thorough due diligence on the borrower: The best platforms will thoroughly assess the creditworthiness of a borrower before agreeing to loan to them.

Ultimately, your IF ISA of choice should offer an attractive interest rate, with minimum investment and average loan periods that appeal to you. It should be made very clear how it’s secured, and all information about the potential risks should be made accessible.

The Minimum Investment

The minimum investment required for an IF ISA can vary from £10 to £100,000, with the ability to invest lump sums. Interest rates are determined by a combination of factors, but a larger investment generally yields a higher return.

Length of Investment

Loan terms vary quite significantly depending on your choice of IF ISA – some providers don’t have definitive loan terms, while other loan terms can average between 3-5 years. It’s important to find out in advance what the terms are if you’re planning on seeing your investment returned quickly.

Alternatively, you might want to compound your interest in order to maximise your returns – either way, it’s worth checking to see what your provider allows.

The House Crowd’s Innovative Finance ISA

If you’re interested in investing in peer to peer property lending via an IF ISA, The House Crowd’s IF ISA might be right for you. It automatically diversifies your investment across our portfolio of peer to peer bridging and development loans, all of which are secured against UK based property.

Investment starts from £1,000 up to the maximum tax-free allowance of £20,000 in any one tax year. You can earn tax-free interest of up to 7% per annum and can choose whether you want to receive your interest twice a year or compound it instead.

If you’d like more information on our Innovative Finance ISA or other secured peer to peer lending opportunities, we can help. Register for an account or get in touch with our member support team today.

As with all investments, your capital is at risk and returns are not guaranteed. Please read our full Risk Warning and Important Information page before investing.

 

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