It has been a sluggish start for the Innovative Finance Isa (IF Isa) until this point. Major peer-to-peer lenders are still waiting for approval from the Financial Conduct Authority (FCA) to introduce the Isa on their platform, and many investors have never even heard of it, according to a new survey.
These products allow borrowers to lend directly to individuals and small businesses up to the yearly Isa limit - £15,240 in the 2016/17 tax year, rising to £20,000 in April.
In a survey of 2004 UK adults, Crowdstacker found that half of the investors questioned said they had never heard of the IF Isa, and a further third do know the name but don’t know what it is. In fact, the research found that only 5% said they know enough about what an IF Isa is to be able to explain it clearly to other people.
About 4% of all potential Isa money is earmarked for investment in IF Isas over the 2017/18 tax year, according to the data released by Crowdstacker.
It also found that those who have already invested in Crowdstacker’s IF Isas have invested more on average, than in traditional cash Isas - £7,013 per person, compared with £5,810 per year.
Despite being launched in April 2016 only a small proportion of providers (about forty) currently offer products. These are typically smaller players such as Abundance, Crowd2Fund, and Crowdstacker. Major brands, notably Funding Circle, Ratesetter and Zopa, are all still awaiting approval from the FCA before they can offer their own Isas.
An FCA spokesperson comments: "The time taken to determine each application is influenced by the completeness of the information provided by the firm and their co-operation with our requests. In each case, we undertake a robust assessment to ensure the firm meets our threshold conditions."
LendingCrowd and Lending Works have become the newest peer-to-peer firms to offer innovative finance Isas. LendingCrowd has a 6% target rate of return each year, while Lending Works targets a yield of between 4% and 4.5%. Any returns made on these investments are tax-free in an Isa.
However, would-be investors must remember that, unlike cash Isas, any funds invested are not covered by the Financial Services Compensation Scheme. And as with any investments, the value can go down as well as up - so you could lose what you've lent.
This story was originally written for our sister magazine, Money Observer.