The Hits Just Keep On Coming For UK Savers
Just days after provider research showed that ISA savers have missed out on returns of £100bn by investing in cash rather than stocks and shares, NS&I have announced across-the-board cuts to the returns on their premium bonds and Direct ISA.
On 1 February, FTAdviser reported the foregone earnings of risk averse investors, with the erosive impact of inflation an example that even cash holdings are not without long-term risk.
Less than a week later, a BBC Business article today (8th Feb) brought us the news of wholesale cuts to government-backed National Savings & Investment product returns. Reductions to the returns on their fixed rate income bonds and ISAs, along with a smaller prize pot and fewer top prizes for their premium bond holders – NS&I claiming the reductions were consistent with Bank Of England base rate cuts and current market conditions.
Sustained low interest saving rates offered by UK banks for the last few years have increased the relative attractiveness of traditional ISA investments and even more traditional premium bond ‘raffles’. But an increasing number of savers are reaching a tipping point where the returns on alternative investments simply can’t be ignored any longer.
Whilst the peer to peer market still remains a relatively well kept secret, 2016 P2P industry figures suggest income-starved UK investors are starting to become more comfortable with such alternative investments – as they go in search of better returns on their money.
Proplend connects private investors directly to commercial borrowers with loans secured by UK income producing property – investors having the option of investing across three loan-to-value (LTV) based ‘tranches’. Capital is at risk and investments are not covered by the Financial Services Compensation Scheme but online P2P providers like Proplend have built in their own security and taken steps to minimise investor risk.
Its Tranche A, lower risk and reward investment, was recently heralded as one of the lowest-risk UK P2P lending platforms in a recent Times article. Proplend limit the loan amount for this tranche to under 50% of the value of the commercial property providing the security – where investors can expect fixed monthly, inflation-beating income equivalent to around 6.5% pa. The maximum LTV considered for the Proplend platform is 75% and six months’ interest payments are retained from the loan advanced in case of borrower payment difficulties.
Alternative Investments like P2P commercial loans have been accepted investments within SSAS and SIPP pensions for a while now, with interest paid tax-free. But these higher rates of return can now also be earned tax free with your ISA allowances following rule changes allowing Innovative Finance ISAs (IF ISAs) – Proplend due to launch its within the next few months.