Peer-to-peer ISAs to be delayed

The inclusion of peer-to-peer loans within ISAs look set to be delayed until after next year's general election.

The Treasury is currently holding a consultation looking at how to fit peer-to-peer deals within the ISA model, which finishes on 12th December. The ambition was to have peer-to-peer deals included within ISAs by April, but that now looks likely to be pushed back according to the industry's trade body, the Peer-to-Peer Finance Association.

Christine Farnish, who chairs the association, told the FT that technical issues, coupled with the need to assess the results of the consultation, would likely push back the implementation of peer-to-peer ISAs until after the general election in May.

Bruce Davis, co-founder and joint MD of Abundance Generation agreed, pointing to the fact that the election will cause the Civil Service to shut down for eight weeks.

He added: "September is the earliest they could launch as the 'solution' requires an adjustment to the Regulatory Order, which requires legislative time. I think in reality after the consultation most platforms will need a few months to get ready for launching ISAs."

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The growth of peer-to-peer

Peer-to-peer has become very popular in recent years, as savers look to alternatives in order to secure a better rate on their money than with banks and building societies. With a peer-to-peer site, you lend your money directly to individual borrowers or businesses in return for rates that you simply don't see on the high street.

For example, right now you can get rates as high as 7.1% lending to businesses through Funding Circle, while lending to individuals at RateSetter will get you up to 5.9%, at Lending Works you can get up to 5.5%, and over at Zopa you can get a rate of 5.1%.

Around £900 million was lent on peer-to-peer platforms that are members of the Peer-to-Peer Financial Association in the first three quarters of 2014; almost as much as in the previous three years combined. These lenders are growing at a rate of 100% a year.

There are risks too though. While peer-to-peer lending is now regulated, your money is not protected by the Financial Services Compensation Scheme (FSCS) so in theory you could lose it all. That said, all of the big players now have some form of provision fund which can step in to cover borrower defaults to keep your losses to a minimum.

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What will a peer-to-peer ISA look like?

The Treasury is looking at how peer-to-peer could either fit into stocks and shares ISAs or an entirely new category of ISA.

As customers' money is not guaranteed, it's more accurate to class peer-to-peer lending as an investment, which presents its own problems.

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