Higher Interest Rates Direct
Monthly Fixed Income Returns
Proplend seeks to achieve the best interest rates for its Lenders by connecting them directly to corporate Borrowers. That means better returns on investment and more income – every month.
Our peer to peer loan investments (or peer to business to be more precise), pay a fixed monthly income for the duration of the loan period. These regular, interest-only payments, are paid gross to Lenders’ Proplend client accounts. Lenders can decide to have their fixed income automatically ‘swept’ into their personal bank account or accumulate it for reinvestment.
We align our interests with the interests of Lenders, so we only get paid when the Borrowers make their monthly interest payments. Proplend deducts a 10% ‘Lender Fee’ from the monthly income payments received, only after they have been allocated to the relevant Lender accounts. We’ve done it this way for financial transparency – so that Lenders can see the total gross interest payment coming in and the amount of the fee coming out of their accounts. Returns are paid gross and are taxable, so this clear ‘trail’ can help with personal tax accounting.
For example … an investment of £10,000 at 7.5% pa gross interest would result in a monthly interest payment of £62.50 (£750 each year). The 10% Lender Fee of £6.25 would be clearly debited after the monthly loan interest payment has been made, leaving interest after fees for this investment of £56.25.
Tax Free Income When Investing Through a SSAS, SIPP and soon, IFISA
P2P loan investment income is (potentially) taxable unless the investment is made through a SSAS or SIPP pension scheme. An increasing number of SSAS and SIPP providers now accept peer to peer, alternative investments and as of 6 April 2016, these investments can also be included within an Innovative Finance ISA (IFISA).
Having received full FCA authorisation, Proplend’s IFISA is due to launch in May 2017, where the same inflation-beating returns will be available tax free either through investing the current year’s ISA allowance or through transferring in ‘ring-fenced’ ISA funds from previous tax years.
But don’t forget your 2016-17 personal savings allowance … whilst SSAS, SIPP and IFISA investment income is completely tax free, current savings allowances available mean that the first £1,000 income and interest from personal investments held (outside of these tax-efficient wrappers), can be received tax free by basic rate taxpayers – the first £500 is tax free for higher rate taxpayers. So make sure you take advantage of these allowances while they’re being offered and diversify your investment portfolio.
Risk and reward
Proplend has pioneered a three ‘Tranche’ investment model to offer its Lenders the choice of lower, medium and higher risk lending opportunities for the same loan. As you’d expect, the higher the capital risk the higher the income reward.
Tranche A, Proplend’s lowest risk investments, has a maximum loan to value (LTV) of 50%. This means that in the event of a Borrower defaulting on their loan, the value of the commercial property provided as security would have to fall by at least 50% before there was any risk that the full capital investment was not returned to Tranche A Lenders.
Because these Lenders are repaid first in the event of a default, their interest rate (and investment income) is not as high as Tranche B (who are paid next), with higher risk (66-75% LTV), Tranche C Lenders earning up to 12% pa gross.
Monthly and Annual Income Comparison
The table below shows the monthly and annual income Lenders can expect to earn when investing in Tranche A, B and C. The interest rate on offer for each Tranche is different from loan to loan so we’ve used the latest average Annual Interest Rate (AIR) for each Tranche to illustrate.
*This is the annualised percentage return after fees, but before bad debt and taxes for active loans on the platform for the 12 month period to 31 December 2016, with Interest not re-lent. It is calculated by taking an average of the Annual Interest Rate (AIR) across all loans. The average AIR is not weighted based on the value of the monies lent and assumes that the average AIR is achievable based on lending the same amount to all loans listed on the platform. Past performance is not a reliable indicator of future performance.
Investment Capital Repayment
Loan capital is repaid by the corporate Borrower to each of the participating Lenders at the end of the loan period. Proplend receives the total loan amount back and allocates this capital back to participating Lenders.
If the Borrower is unable to repay some or all of the loan capital on the investment repayment date, Proplend can invoke the first legal charge on the securing commercial property to get Lenders’ capital back. Our three Tranche LTV loan model helps our Lenders understand the loan to property value ‘cushion’ they have and to only accept a level of capital risk that they’re comfortable with.
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