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Best Innovative Finance ISAs In 2021

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By on 23 February, 2021 | Read more by this author

What are the best Innovative Finance ISAs?

I have pulled out all of the IFISAs on the market that meet very high standards and have extremely good prospects for lenders. In selecting the best Innovative Finance ISAs in 2021 – or indeed in any year – I want to see excellent historical results, strict standards when assessing loans, and a team that is capable of following through with those assessments.

With property lending, I want to see professional loan monitoring and rapid steps taken to recover any loans that turn bad. I absolutely need to see that the P2P lending companies are very open, sharing a lot of information with us, so that we can be confident in our assessments.

I want to be convinced that lenders who spread their money across a batch of the best Innovative Finance ISAs, and plenty of individual loans, will come out with firmly positive results throughout this pandemic and in any major recession or property crash. No IFISA makes the list if its prospects don't meet these standards.

Indeed, I firmly believe the chances of lenders losing money overall across this list of IFISAs is extremely remote. (Do read HMRC Confirms You Can Open Multiple IFISAs In One Year!)

I don't care about rapid access and I don't consider that a good criterion for selecting an Innovative Finance ISA. As regular readers know, my position has always been that if lenders really think they will need and want rapid access under all circumstances, they should lend less money or no money through IFISAs and P2P lending accounts. You must assume that a lot of your money will be lent until it is repaid naturally by the borrowers, because sometimes this is precisely what lenders will have to do.

I also, personally, don't care if the type of lending that you can do in the IFISA typically leads to a lot of loans turning bad and which need a long time for you to recover your money. This is provided we can expect that the recovery on that bad debt is going to be very high and that interest rates will cover the risk. (That said, no such IFISAs are currently making my best Innovative Finance ISAs list.)

All the IFISAs I select do peer-to-peer lending.

Finally on narrowing down to the best Innovative Finance ISAs, the pandemic has seen some IFISA providers slow their lending or even halt it. This list only includes IFISA providers that are still approving a decent number of high-quality loans.

How my list is sorted

I have no strong preference for any one of these ISAs over the others; they are all very solid choices paying attractive interest rates and best practice for lenders is to spread risks through a half-dozen or so P2P lending accounts and/or IFISAs anyway. Today, I've simply sorted this list based on how old the P2P lending company/IFISA provider is.

Proplend Innovative Finance ISA

Proplend's best loans offer attractive interest rates with extraordinarily good property security receiving rent.

Proplend pandemic prospects

Proplend does a mix of residential and commercial property lending. Some parts of the commercial-property market in particular are going to have varied results over the coming 12-24 months, with pandemic-hit areas, such as rented shopping space, potentially suffering.

However, Proplend has a wide range of different types of borrowers that are renting out properties from petrol stations to vineyards and from office blocks to residential flats, which spreads the risks very nicely. The fact that most Proplend borrowers are receiving rent against their residential and commercial properties adds an additional strong layer of safety.

There are four outstanding troublesome loans that are being managed by Proplend. Even if they were all to fall apart, diversified lenders can still easily expect to make money overall.

Interest rates and bad debts

The Proplend Innovative Finance ISA* has been paying an excellent 7.27% on its lowest-risk loans, called tranche A loans, which are mostly on properties receiving rent that is 1.1 or 1.25 times the monthly loan payment. And all of the loans are 50% or less of the property valuation. That's market leading.

Proplend has an excellent record since it started in 2014 of getting lenders their money and interest in full on loans that suffer any issues. Out of £110 million lent, there has been just one loan where lenders who chose a higher-risk junior loan (“tranche B”) lost a bit of money. At just £40,000 in losses, lenders have earned 275 times as much money in interest, with over £11 million earned. No lenders who have spread their money across lots of loans will have come close to losing money.

How to lend

I like to self-select a specific set of property loans at Proplend that have all four of the following characteristics:

  • “Tranche A” loans, which means the loan is for less than half of the property valuation (50% LTV or less).
  • Loans that have never been renewed or rolled over, in order to reduce the risk of being caught out with a problem borrower that tries to kick the can down the road.
  • The loans are based on residential or commercial properties that are already receiving more in rent than the monthly loan payments to Proplend’s lenders.
  • The loan is not connected to any other loans that I am already lending in, which usually means that it’s not to the same borrower.

While Proplend's other loans are also attractive, these particular loans have paid lenders nearly 7% on average after lending fees with no losses. A highly satisfactory reward for the risks involved.

For loans where I feel the rental income looks especially safe, I also consider putting some money in tranche B or even tranche C, which come with higher interest rates.

While I prefer self-selecting specific loans with Proplend, lenders using the free “auto-lend” facility get to lend in new loans first. Using auto-lend greatly improves your chances of being able to take part in a loan. So it’s very sensible to temporarily switch on “auto-lend” just prior to an announced loan going live. You can set the maximum amount you want to lend in the loan at the same time.

Switch auto-lend off again afterwards if you want to continue to decide for yourself which loans to lend in. Get your money spread across as many different loans as possible.

The minimum you can put into a loan is £1,000.

Visit Proplend* or read the 4thWay Proplend Review for more stats and information. Also, check it out in our comparison tables.

CrowdProperty IFISA

An excellent record on development lending combined with strict, professional and rigorous risk-assessment, loan-approval, loan-monitoring, and bad-debt recovery processes.

CrowdProperty pandemic prospects

CrowdProperty has been very open with 4thWay about any issues with borrowers during the pandemic and I'm confident everything is firmly under control.

Even if all delayed loans turned bad (which they won't) it would not be sufficient to cause an overall loss to lenders who have spread their money across lots of loans. CrowdProperty's borrowers are high quality and in the worst-case scenario lenders are always first in the queue to get their money back if the development needs to be repossessed and sold.

Interest rates and bad debts

The CrowdProperty Innovative Finance ISA pays around 8% to lenders.

Out of £110 million in lending, no loans have turned bad since it started in 2015. A relatively small proportion of loans have had to be extended once or twice due to the pandemic, but the property market has been holding up nicely and CrowdProperty leaves a large amount of headroom in for borrowers to take longer to complete developments and sell their properties, so that lenders can get all their money and interest due and developers make a profit. Developers don't make a penny until all lenders are paid in full.

How to lend

CrowdProperty's optional auto-lend is useful provided you cap the amount that will be lent in any one loan. Otherwise, ensure that you take the time to lend across as many loans as possible. Try to build up to a couple of dozen at the least.

With manual lending you need to lend at least £500 per loan. With auto-lend, you lend at least £500, but you can choose to lend as little as £50 per loan. You can use both manual and auto-lend simultaneously.

If using auto-lend, you could put less money in to begin with and top it up after some of it has been lent out. This ensures that your money is not sitting in CrowdProperty’s investor account for several months without earning interest.

Visit CrowdProperty or read the 4thWay CrowdProperty Review for more stats and information.

Act now to spread your money across lots of IFISAs

If you have few or no lending accounts and you want to spread rapidly across all the best Innovative Finance ISAs in 2021, you're going to have to open lots of accounts now and put money into one of them before the 6th of April. Read more on how to do this while still following the ISA limit rules.

Invest & Fund Innovative Finance ISA

A solid investment that would fit in any lending or investment portfolio.

Invest & Fund pandemic prospects

Invest & Fund's focus on residential property lending is one of the more stable and secure kinds of lending, with house prices supported by a housing shortage that has endured for several decades.

Due to professional and high standards, the condition of the loan book 11 months into the pandemic is very strong indeed, which is a testament to Invest & Fund's abilities. Invest & Fund approves loans that are considerably lower than the property valuations and most loans are senior debt, putting you first in the queue to get your money back with interest in the event that any loan turns bad.

Interest rates and bad debts

The Invest & Fund Innovative Finance ISA is paying over 6% to lenders after lending fees. Interest rates are lower than most others on this list, but still attractive for the low risks involved and sensible for the risk-reward balance. From time to time Invest & Fund approves junior loans with known borrowers that pay 15% or more; these loans have established a perfect record in being repaid in full.

Invest & Fund has had no loans that have fallen behind by as much as six months in its entire history, starting in 2015. Out of £107 million in lending, it has had two or three loans that briefly suffered some issues, but they were dealt with quickly.

How to lend

Sophisticated and professional investors may choose individual loans, if they want. Everyone else lends automatically. No more than 10% of your Invest & Fund pot is ever allocated to a single loan.

You could put money into Invest & Fund in several stages a few months apart, to increase your chances of having your money spread across dozens of loans more quickly.

Also, if your money is being allocated too slowly, you can withdraw unlent money and then try re-lending it again a month or two later, although bear in mind the ISA rules on withdrawals. Invest & Fund's ISA is a flexible ISA, which means you can withdraw and re-deposit new ISA money in the same tax year (from 6th April to 5th April) without losing your ISA allowances. Therefore, you probably won't want to put money in during March and then withdraw it to your bank account at the end of April, as it will mean you lose some of your 2020/2021 ISA allowance!

The minimum you can put into your Invest & Fund IFISA is £2,500 and the smallest amount you'll lend in a loan is £250.

Visit Invest & Fund or read the 4thWay Invest & Fund Review for more stats and information.

Diversifying is an essential cornerstone of good investing. I personally wouldn’t put more than 10%-15% of my money in any lending account – even the best Innovative Finance ISAs. I don’t see the point in concentrating my risks when there are enough great choices out there to spread my money around.

Kuflink IFISA

Kuflink's P2P lending platform started in 2015, but the wider business has been lending since 2011 with an impeccable record over ten years.

Kuflink pandemic prospects

Kuflink's loans could suffer some modest bad debts as a result of the pandemic, the vast majority of which will be recovered in full by Kuflink, usually relatively quickly for property lending. Lenders who spread across lots of loans should fully expect to make a decent interest rate after any losses.

Interest rates and bad debts

The Kuflink Innovative Finance ISA* is targeting 7% lending interest rates and Kuflink has historically met this amount for lenders. This interest rate includes the cost of “cash drag”. That means if some of the money in your Kuflink IFISA is not lent out at some point due to not enough loans available, you will not earn interest on the unlent money. The 7% rate is the expected rate on all your money in your Kuflink IFISA, even if this happens to you from time to time.

Cashback of between 2% and 4% – up to £4,000 – is paid on top of the lending rate. More on that here.

Out of well over 200 loans and £104 million in lending, three or four Kuflink loans have suffered modest losses in the past. Kuflink has historically just paid for those losses out of its own funds, although lenders could easily have swallowed the small hit for themselves.

How to lend

Your money is spread across at least five loans and Kuflink tries to spread you across as many as possible. Over time you can expect your money to be spread across an increasing number of loans. Since five is not a sufficient number of loans, drip your money in over the course of several months to increase the speed in which your money is spread out.

The minimum lending amount is just £100.

Visit Kuflink* or read the 4thWay Kuflink Review for more stats and information.

You can dramatically lower P2P and IFISA lending risks further by lending fixed amounts every month, regardless of how the economy and borrowers are doing, and commit to lend until all the loans have been fully repaid. This ensures you even out any blips – not that the best Innovative Finance ISAs would be anything like the stock market rollercoaster anyway.

CapitalRise Innovative Finance ISA

The highest-rate lending on our list with mostly junior loans from a professional outfit with perfect results. Available to investors classified as sophisticated investors or as certified high net worth individuals only.

Showing the typical stack in a best Innovative Finance ISA from CapitalRise

Click/tap to expand image showing lenders' typical junior position in the CapitalRise “stack”.

CapitalRise pandemic prospects

CapitalRise has had a couple of loans fall four to five months late, but these are due to be repaid in days or might even have been paid off already. A few loans have been extended due to the pandemic, as elsewhere, but CapitalRise builds a very lengthy safety margin into its loans.

CapitalRise takes an interesting contrarian view and focuses on prime London property lending where others are cautious. Yet the reality is that it's been a resilient niche for decades and 2020 showed that the super rich continue to support house prices with low bad debts when borrowing.

Interest rates and bad debts

The CapitalRise Innovative Finance ISA has been paying nearly 10% lending rates and has had no bad debts since it started in 2016, after arranging £65 million in lending through its online platform. I expect bad debts to be easily contained in future, despite the junior position CapitalRise lenders take in loans, meaning that you're not first in the queue to get your money back.

How to lend

I favour spreading money across as many CapitalRise loans as possible, although sticking to one tranche of a loan when developers are receiving money in stages. I prefer lending in later tranches at the same interest rates, as more of the risks on the development are in the past. But in the event CapitalRise has a weak month or two in terms of approving loans, the risks are still very well contained in the first tranche.

I don’t do any lending in CapitalRise equity loans, which are not pure lending.

For CapitalRise’s junior loans – its mezzanine loans – I prefer lending when the total loans – that’s all tranches and loans from other senior lenders combined – are for less than 70% of the expected sale price. That's most of them anyway.

When lending in CapitalRise’s junior loans, make sure you add up both the total lent in your loans as well as the total lent by the senior lenders before you. Compare the total to the property valuation and make sure that it’s nicely in your favour.

The minimum lending amount is £1,000 and you always choose your own loans.

Visit CapitalRise or read the 4thWay CapitalRise Review for more stats and information.

Don’t forget that both the interest rates and the risk profile of an IFISA provider can change, even if it offers one of the best Innovative Finance ISAs, so you need to monitor it. Perhaps with help from the ratings and research agency called 4thWay…

Loanpad Innovative Finance ISA

Insanely safe lending to add even more balance to your overall lending portfolio.

Loanpad pandemic prospects

The loans have the best security in the UK's P2P lending and Innovative Finance ISA industry, with loans typically being for around one-third of the valuations of the property and for a maximum of 50% of the valuation. Partner companies with decades of lending experience will lose their money before you as they take a very large first loss by lending more to the borrowers in a junior loan.

The risk of losses on any individual loan is lower here than anywhere else. With lenders' money automatically spread across all outstanding loans, it's not conceivable that you will make an overall loss.

Interest rates and bad debts

The insanely safe lending explains why the lending rates in the Loanpad Innovative Finance ISA* are the lowest of all my selections at 4%. Loanpad has had its share of loans that have missed payments and one or two are technically bad debts, but I expect highly competent bad-debt recovery and the quality property security to see off the worst with no losses to lenders.

Loanpad has made £10 million in loans since 2018, so its still early days. This short history is compensated for by the safety of its loans and professionalism of its team.

How to lend

Your money is automatically spread across all loans and adjusted as new loans come in or are paid off.  The only decision to make is choosing between the two accounts. Clearly, the Loanpad Premium IFISA is best, paying 4%. The other account pays a little less for potentially earlier access, but I've already explained that rapid access is not an essential feature of the best Innovative Finance ISAs.

Visit Loanpad* or read the 4thWay Loanpad Review for more stats and information.

4thWay articles mentioned above:

P2P Lending And IFISA Cashback Deals Available Now.

HMRC Confirms You Can Open Multiple IFISAs In One Year!

4thWay's Definition Of Peer-To-Peer Lending.

And now read even more: 

The Peer-To-Peer IFISA Guide.

15 Years Of Profitable P2P lending And Beating The Stock Market.

Independent opinion: the opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.

All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.

*Commission and impartial research: our service is free to you. We already show dozens of P2P lending companies in our accurate comparison tables and we keep adding more as soon as they provide us with enough details. We receive compensation from Kuflink, Loanpad and Proplend, and other P2P lending companies not mentioned above when you click through from our website and open accounts with them. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers two “bonds”, one of which is available as an ISA.

Unlike its P2P lending service, neither of these bonds allows you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

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Why are Orchard’s interest rates different?

Orchard’s lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Orchard’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

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Why are Wellesley’s interest rates different?

Wellesley’s P2P lending rates appear higher on its own website than on 4thWay®.

This is because we calculate Wellesley’s interest rates the same way most other P2P lending websites do. We do this so that you can compare the rates more easily and so that they show a more accurate picture of what you’ll earn.

Important information before you visit Wellesley & Co.

Wellesley & Co. is primarily a P2P lending website.

But, when you visit the Wellesley website, you’ll see that it also offers “bonds”. Unlike its P2P lending service, its bonds don’t allow you to lend directly to 100+ borrowers.

Instead, you lend to Wellesley and it lends to other borrowers.

We have not risk-rated either of those bonds, but we expect that their structure makes them more risky, particularly because you’re lending to just one borrower.

Got it

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