There’s a new Innovative Finance ISA from Landbay. Here’s everything you need to know.
Landbay launches first IFISA
Landbay is the latest peer-to-peer investment platform to launch an Innovative Finance ISA (IFISA).
The IFISA is a new type of ISA that allows peer-to-peer (P2P) investments to form part of an ISA portfolio for the first time.
The Landbay Property-Backed IFISA is available now.
This guide explains how the Landbay P2P platform works, the rates on offer and how it compares to other IFISAs on the market.
How Landbay works
Landbay is a peer-to-peer platform that allows you to invest in property.
Landlords that want to borrow to fund residential buy-to-let mortgages in England and Wales can apply for loans between £50,000 and £500,000.
Borrowers must have a minimum deposit of 20% and undergo a comprehensive credit and affordability check. If suitable the buy-to-let mortgage request is made available for investment.
Investors with a stake in the loan get returns when the borrower makes monthly payments.
Since it launched in April 2014, Landbay has helped investors lend £43 million to professional residential landlords in Britain.
The Landbay IFISA
Landbay is now offering a fixed-rate IFISA that pays 3.75%.
You can invest from £5,000 up to your full 2016/17 ISA allowance of £15,240 and the Landbay IFISA also allows transfers in of previous or current tax year ISA funds.
The account pays monthly interest which you can withdraw or reinvest.
The rate is fixed for a period of up to five years before it switches to a variable rate. However, there is no set term for the fixed-rate.
This is because when you make an investment your money will be allocated to multiple loans, which have varying fixed periods of two, three or five years which complete at different times so the ‘reversion date’ for each loan will differ.
Landbay says it expects the rate to be fixed for no more than five years but the investment may move to a variable rate well before then. However, the variable rate for the remainder of the loan term will be at least equal to your fixed rate of return.
Your investment will start earning interest within 24 hours of receipt of cleared funds and so long as there are mortgage investments available.
How to cash in an investment
You can sell loan parts that make up your investment at any time fee-free on Landbay’s secondary market. However, it’s not guaranteed that they will be able to be reallocated to new investors.
Landbay says in ordinary market conditions the secondary market typically sells loan parts within a few days.
How safe is your money?
The Landbay IFISA is not covered by the Financial Services Compensation Scheme (FSCS), so your money is at risk.
However, the money you invest, unlike other peer-to-peer platforms, is secured on buy-to-let properties.
Landbay also says it will automatically diversify investments across multiple buy-to-let mortgages to spread risk.
In addition, Landbay also has a Reserve Fund (made up of platform and product fees paid by borrowers) that can be used in case a borrower misses a payment or defaults on their loan.
To date there have been no defaults and therefore no claims on the fund.
The fees to watch out for
Landbay doesn’t charge fees for opening an account or transferring funds in from previous or current tax year ISA funds.
However, if you choose to transfer your Landbay IFISA to another provider there is a £50 charge.
There’s also an ‘ISA repair fee’ of £50 if you manage to fund your IFISA with more than your tax-free annual allowance for the year.
Can you transfer existing Landbay investments into the new IFISA?
ISA rules do not allow direct transfers of existing loan investments into an IFISA.
So, you won’t be able to simply transfer your Landbay Classic Investment Account into a Landbay IFISA.
However, you can sell your existing loan parts on the secondary market and use the money from the sale to deposit into the Landbay IFISA up to the £15,240 limit for the 2016/17 tax year.
How does the Landbay IFISA compare?
There are a handful of other peer-to-peer companies offering IFISAs paying better rates.
Lending Works, which allows investors to lend to individuals in need of a loan, is offering a three-year fixed rate IFISA paying 4% and a five-year fixed rate IFISA paying 4.5%. Read more in: Lending Works review: the safest UK peer-to-peer lender around?
Other platforms which matches investors with business that need finance are also offering competitive returns.
The Crowd2fund IFISA can earn you 8.75% before fees and bad debt, the Crowdstacker IFISA is offering rates between 5-7% and LendingCrowd IFISA is offering 5.95% returns.
Abundance, which raises money from investors for green energy projects, claims it can offer returns of 6-9% in its IFISA.
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