The UK government has launched a consultation on how to enable people who offer peer-to-peer (P2P) loans to use tax free individual savings accounts (ISAs).
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P2P loans, available through sites such as Zopa and RateSetter, take money from savers to lend to individuals or small businesses.
The loans offer much higher returns to savers than conventional savings accounts, but come with greater risks, as lenders can lose their money if it is not paid back. However, with interest rates at a record low, savers have flocked to take the risk.
The government consultation, which closes on December 12, will ask whether peer-to-peer loans should be included within existing stocks and shares ISAs, or whether a new third type of ISA should be established to cover the loans.
The government is thought to be keen to promote the P2P sector to allow businesses to receive loans without having to go to a bank. Chancellor George Osborne first announced the idea in this year’s budget.
Should the plans push ahead, savers could see their returns become tax-free.
“This consultation marks a tipping point for the UK P2P market – it is estimated that ISA inclusion will see the sector grow from £2 billion to £45 billion within the next few years,” said Rhydian Lewis, chief executive of RateSetter.
However, some commentators have warned that savers must be aware of the risks that may come with P2P lending.
“If implemented, the initiative would bring greater choice for consumers and also provide some competition against the traditional savings products currently in the market. With savings rates at an all-time low, and no clear indication of when the base rate rise will happen, savers need all the help they can get,” said Kevin Mountford, head of banking at MoneySuperMarket.
“However, although peer-to-peer products often attract above average returns, they do come with greater risk. Customers should not simply dive straight in, and instead be mindful of the selection of their peer-to-peer provider.
“As with all savings products, it’s always worth taking some time to review what is on offer, and only select the product which is best suited to your individual needs.”
Photo: 401(K) 2012 via Flickr