A new Innovative Finance Isa (IF Isa) has launched offering a whopping 7.28% annual interest rate. The easyMoney ‘Balanced’ IF Isa allows you to invest in peer-to-peer lending – where your money is lent to individuals or small businesses – within an Isa wrapper, so your returns are tax-free.
With the easyMoney IF Isa, your money is lent to property developers with the loan secured against a range of residential and commercial property. The target rate of 7.28% is a guide to what return you can expect from investing in multiple property-backed loans, all of which have a maximum 75% loan to value.
“EasyMoney strives to offer inflation-busting interest rates, with a new alternative to cash Isas that can increase returns, in exchange for a little extra risk,” says Andrew de Candole, chief executive of easyMoney.
The firm offers two different IF Isas: its ‘Conservative’ IF Isa, has a 4.05% targeted annual return with a minimum investment of £1,000. It is “aimed at investors who are looking for something more than the paltry rates offered by cash ISAs”, says Mr Candole.
Meanwhile, the ‘Balanced’ IF Isa,has the 7.28% target annual return with a minimum balance of £10,000.
The key difference between the two IF Isas – aside from the rates – is that the Conservative product has a maximum 65% loan to value on what it lends compared to 75% for the Balanced IF Isa.
Money held in an IF Isa carries more risk than money kept in a cash Isa. For example, IF Isa money isn’t covered by the Financial Services Compensation Scheme (FSCS), which means if the company goes bust you may not get your money back. You also risk losing some, or all, of your money if your loans are not repaid.
EasyMoney tries to reduce the risk of lenders losing their money with strict lending criteria. All loans have to be secured against a property and that property has to be within 30 minutes’ commute of a town of at least 50,000 people, to make sure the houses are saleable in the event of a market slowdown.
The firm also runs checks to make sure the borrower has a clear business strategy, a good track record and the property the loan is secured against has been independently valued by a Royal Institute of Chartered Surveyors professional.
Once you’ve invested your money, the company will build you a portfolio of loans with repayment terms of three to 24 months. You cannot withdraw your money early as it has been lent out, you would only be able to access it if you could sell your loan to another investor.
Your interest is paid monthly so long as your borrowers make their repayments. If they fall behind, then easyMoney will work with them to try to get them back on track, but, as a last resort, the firm could repossess and sell the property in order to recoup your money.