2014

When the UK’s Chancellor of the Exchequer, George Osborne announced his Budget 2014, he revealed that the UK government intends to make peer-to-peer loans eligible for inclusion within Individual Savings Accounts (ISAs).

Today the UK government issued a consultation paper about the implementation of the announcement. The paper proposes changes to allow peer-to-peer (P2P) loans to be held within ISAs, which will make P2P lending a much more inviting investment which is tax-free. Current limits on ISA accounts are £15,000 ($24,000) and they can be two types of cash or stocks and shares.

As the UK government is looking to encourage competition to the banking industry the move is aiming to broaden the scope of investment opportunities in ISAs and provide a wider array of choices to ISA investors.

Peer-to-peer lending has been growing exponentially in recent years. According to the leading P2P analytics company AltfiData, this still relatively new form of alternative lending has surpassed £2 billion in lending. Growth rates have been on a steady rise amounting to 158% on an annualized basis. The figures in the study include both individual and corporate lending.

Liberum AltFi Volume Index October 2014, Source: AltFiData

Current industry leaders include industry veteran Zopa which focuses on individuals and Funding Circle and Ratesetter which are targeting business lending.

The UK Treasury has already been in consultation with industry peers after the formal announcement made at Budget 2014. The move represents a vote of confidence by the UK government to the rapidly growing industry and could further legitimize and increase the popularity and the reach of P2P lending.

The government is seeking comments from P2P lending platforms, individual investors in P2P lending and ISA managers and consultants. Responses to the consultation should be sent to the UK Treasury by the 12th of December this year.

Across the Atlantic, a recent study by the Federal Reserve Bank of Cleveland concluded that P2P lending is set to continue to grow rapidly. US peer-to-peer lending company, Lending Club recently filed its S-1 prospectus as it looks to raise up to $500 million in an IPO.

For the full text of the consultation visit the UK government’s website.