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Government to consult on new Peer-to-Peer lending ISA | |
(about 3 hours later) | |
The government is considering setting up a separate tax free individual savings account (ISA) for people who want to lend out money. | |
The new ISA would be for people who lend money via Peer-to-Peer (P2P) borrowing sites. | |
In would be in addition to the two longstanding ISAs for cash and shares. | |
Peer-to-Peer websites, like Zopa and RateSetter, accept money from savers which they then lend out to individuals or businesses. | |
Often they attract an above-average return, albeit with more risk. Lenders can, in theory, lose their money, if the borrower is unable to pay it back. | |
The idea has snowballed: £1.8bn has been loaned through such sites so far, and the industry believes including such lending within ISAs will boost it further. | |
"This consultation marks a tipping point for the UK P2P market - it is estimated that ISA inclusion will see the sector grow from £2bn to £45bn within the next few years," said Rhydian Lewis, the chief executive of RateSetter. | |
Question mark | |
The government is keen to encourage the Peer-to-Peer market, not just to help savers, but to help businesses borrow money without having to go to a bank. | |
"This is a vote of confidence from government in our industry which is bringing much needed competition to the banking sector," said Christine Farnish, chair of the Peer-to-Peer Finance Association. | |
The government will now consult on whether Peer-to-Peer lending should be allowed within existing ISAs, or whether a separate P2P ISA should be established. | |
Chancellor George Osborne announced in this year's Budget that in future the loans would qualify to be included in ISAs, making the interest received tax free. | Chancellor George Osborne announced in this year's Budget that in future the loans would qualify to be included in ISAs, making the interest received tax free. |
But there was a question mark over how it would be done. Unlike the bank deposits in Cash ISAs, the new ISA is so far not protected by the Financial Services Compensation Scheme. | |
Danny Cox, of Hargreaves Lansdown, has also warned that too much money coming into the new ISAs could cause problems. | |
"The ideal borrower is looking to fund a new kitchen or car," he said. | |
"P2P firms have the tricky task of matching the numbers of lenders and borrowers, and a huge influx of ISA money could cause them a problem with the risk of a lowering of lending standards." | |
The consultation will last until 12th December. |