Fancy a 8.4% Interest Rate?

MrRee_2

Quote:-

The introduction of peer-to peer (p2p) lending to the Isa system could lead to significantly improved rates of up to 8.4% for savers, industry experts have predicted.

Yesterday, Chancellor George Osborne announced Brits would be able to save a total of £15,000 tax-free each year from 1 July, with savers allowed to hold the full amount in cash, stocks and shares, or a combination of the two thanks to the simplified ‘New Isa' or Nisa.

And for the very first time, p2p loans will be allowed to be held in Isas, letting people access returns that are usually much higher than those offered by traditional providers and to be able to do so tax-free.

The move has been seen as a significant moment in the history of peer-to-peer lending – and potentially for savers who have grown accustomed to rock-bottom rates on their tax-free nest eggs.

Chief executive of p2p lender RateSetter, Rhydian Lewis, said the move would help to rejuvenate the industry, with rates of up to 8.4% possible.

According to Ratesetter, the best rate it currently offers to individuals depositing money to be loaned out to other borrowers is 4.6% – around 3% more than what you would get with a standard cash Isa. If the company's top three-year offer was included in an Isa, this rate would rise to 8.4% - a huge increase on what is currently available.

Taken from MoneyWise

Looks good to me!!

Archi_Bald

P2P can't be included in an ISA in practice for quite some time yet. Whether 8.4% would be achievable in the short term as and when P2P can be in an ISA is an entirely different matter.

Freecall

True and I am a bit skeptical about 8% plus but bringing P2P into the arena of regulated investments was an announcement that rather got overshadowed by the pension changes.

When available as a regulated investment I can imagine a time when P2P could form a part of many people's portfolio.

toomsie

Archi_Bald wrote: »

P2P can't be included in an ISA in practice for quite some time yet. Whether 8.4% would be achievable in the short term as and when P2P can be in an ISA is an entirely different matter.

I don't see that happing for an extremely long time. Government is in league with the banks. The reason why they tax you on saving is because they see it as a profit. Its a blatant insult to savers.

Archi_Bald

The date I have heard mooted is 2017.

Not sure where the blatant insult to savers comes in?

bowlhead99

toomsie wrote: »

The reason why they tax you on saving is because they see it as a profit. Its a blatant insult to savers.

* You give money to someone. They lend it out. They give you back more than you started with. You have made a profit. In this country people who make profits pay taxes. The government uses it, somewhat dysfunctionally, to run infrastructure and society.

* I set up a shop. I buy goods. I sell them for more money than I paid for them. I have made a profit. I pay taxes. The government uses it, somewhat dysfunctionally, to run infrastructure and society.

* I lend someone money to help them set up a shop. They buy goods, and sell them for more money than they paid for them. They thank me by paying interest on my loan to share the spoils with me. I have shared the spoils. I pay taxes. The government uses it, somewhat dysfunctionally, to run infrastructure and society.

* I put money into a bank for safekeeping. I don't want to let the bank do very much with it because I would rather they gave me the money back safely with a small amount of guaranteed income than a potentially larger but variable amount of income with risk that they can't pay me back. They make mortgage loans secured on houses and they make unsecured loans to people and businesses at higher rates depending on how risky the borrowers are. They make profits on this. Like the shopkeeper, they reduce their share of the profit and give me some of the profit in the form of interest on what I gave them. Meanwhile they provide services which include me being able to ask them for my money back, make constant enquiries on the amount, or send it instantly to any person's bank account, or into the account of any shopkeeper on the planet where I want to buy some goods, or into my hands at a hole in the wall in two million locations worldwide. I get back more than I gave them. I pay tax on the profit. The government uses it, somewhat dysfunctionally, to run infrastructure and society.

The only argument not to pay tax on your unearned passive savings income is to say that what you got back is not really any more in real terms than what you paid in, because of the passage of time.

However, unfortunately that's not going to raise enough money to run the country and we would have to get the money from somewhere else like higher taxes on what we buy or on the homes we live in and someone would always complain about that. If you are Tesco and you make £3 billion profit and pay £0.8 billion in tax, you don't get to say that in 1924 pounds like when you first started out, it is not so much money, and you shouldn't have to pay anything because being a £40bn company now is the same as being a £1bn company in the old days.

toomsie

Thanks bowlhead99 my argument was regarding the passing of time, (inflation). For many bad government policies, they have a counter argument( even if it is a weak argument) , but for this one they have none.


Taxing someone on losses cannot be morally justified. It plays on the fact that most people think they are making a profit but actually making a loss.

bowlhead99

toomsie wrote: »

Taxing someone on losses cannot be morally justified. It plays on the fact that most people think they are making a profit but actually making a loss.

I see what you're saying I think, not sure how it translates to P2P lending where typical rates are higher than inflation due to the extra risk, so you are actually making some profit, just perhaps not as much as you would like (which is why I don't do it).

You ask how it is morally justified. Well how is a sales tax or council tax 'morally justified'?

With sales taxes or duties, I am not making any money - I am giving my own money that the government agreed I could have, out of my post-tax take home pay, to someone else. For every bit of value added along the supply chain, the government takes a slice. It presumably tries to do something good with it. But where is my "profit". I guess it's embedded in the value of the item I received, compared to the value of the raw materials used to make it. But am I not paying twice if I pay the VAT and I pay the nice seller for putting the product together for me?

With the council tax, I am sitting at home watching telly, or I'm walking down a street, and this money keeps getting direct debited from me. I don't feel I am specifically 'profiting' every time someone goes past and empties my bin, or repairs the road. In some sense maybe I am, because good things are happening to me and society and they need to be paid for. The government presumably tries to do some good with the money I give them.

So the argument that you shouldn't pay tax if you don't make 'profit' should probably be dropped. Bottom line, we need the government to spend money on doing things for society (health, defence, schools firemen, police, welfare, state, roads etc, whatever floats your boat). We don't always agree with it but we have to pay for it and we get a vote every so often. They try to work out who should pay. Your income is a way of keeping score, even if the time value of money means the measure is flawed.

If you make £25k from depositing money in a bank while I make £20k from working in an office, I want you to pay more tax than me. You say you didn't make any money because of the time value of money. Well I am working 40-70 hours to try to produce some useful stuff for society, what did you personally do for your £25k?. You didn't even take any investment risk. If you didn't take any risks or put any effort into anything, why should you get back any more than you put in, in real terms? You probably shouldn't, and that's why the bank are giving you a sub inflationary rate.

But on the separate question of taxes, we both owe the government some money to spend on the things it wants to do around society. If you claim you shouldn't pay because you didn't make any money, then I have to pay for everything the government does on your behalf, even though I am the one doing the 70 hour weeks and you are just sitting there. The need to have someone pick up your contribution to society, is a type of welfare. Tax is designed to share the burden of it. Do you want to get away without bearing any of the burden? Why?

bowlhead99

MrRee wrote: »

Chief executive of p2p lender RateSetter, Rhydian Lewis, said the move would help to rejuvenate the industry, with rates of up to 8.4% possible.

According to Ratesetter, the best rate it currently offers to individuals depositing money to be loaned out to other borrowers is 4.6% – around 3% more than what you would get with a standard cash Isa. If the company's top three-year offer was included in an Isa, this rate would rise to 8.4% - a huge increase on what is currently available.

Taken from MoneyWise

Back on topic and pardon my naivety for a moment, I haven't really looked at Ratesetter. Is he saying that the typical rate offered to borrowers over say a 3-4 year large loan is 8.4%, while the best rate that lenders would expect to receive when blending together the rates from a basket of borrowers would be 4.6%? And then you declare that on your tax return to pay your marginal rate of tax on the 4.6% earned?

How do the economics change if I put it in an ISA? I just walk away with the 4.6 as I do today, I presume, but I don't pay any tax on it at the end of the year.

Well fine, unsecured lending is riskier than depositing in a bank so I would hope the 4.6% I walk away with is going to be 5%+ really. I get 7% yield on the preference shares I own in Lloyds Bank, which have value in priority to all the regular shareholders, and if I wasn't a higher rate taxpayer there would be no further tax to pay on the dividend (as I am, I hold them in an ISA...).

But how do we get the lending proceeds rate up from 4.6 to the 8.4 he is touting? Have Ratesetter stop taking such a slice of the profit? Or make riskier loans by offering your lending at higher rates and seeing who bites, giving you a less diversified pool of fewer borrowers, who will take the money from you at any cost because they are nutters or they have been turned down elsewhere?

Or does it involve waiting until we are no longer in a low interest environment and the creditworthy borrowers can't get finance from people like Nationwide at 4.9 or 7.3% on 15 or 25k respectively, or Tesco Bank at 4.6 or 6.6% on those amounts, and then all the Ratesetter loans will be made at 10-15% with a commensurate increase to the gross rate returned to the P2P lenders?

Sure that's one way but having a hypothetical situation where in a higher interest environment in a different part of the economic cycle with potentially higher risks of default due to increased costs of borrowing, you could perhaps get 8.4%, it seems disingenuous to compare that to the rival rates available at the current time in the current economic cycle from a zero risk secure savings account and say hey look you all get 1.4% while I want to give you 8.4%. :cool:

mikb

bowlhead99 wrote: »

Is he saying that the typical rate offered to borrowers over say a 3-4 year large loan is 8.4%, while the best rate that lenders would expect to receive when blending together the rates from a basket of borrowers would be 4.6%? And then you declare that on your tax return to pay your marginal rate of tax on the 4.6% earned?

No idea where 8.4% has come from, I'm a lender on RS and there are no such rates currently available.

4.6-4.8%, however, is the current 3 year lending rate.

5.6-5.8% for 5 year.

It is possible that a journalist misquoted Rhydian (I know, it's never happened before :rotfl:-- in the past rates HAVE been that high to lenders. In the 3 year market, Mar 2011, around 8.0% with peaks above. And in Feb 2012, on the launch of the 5 year market around 8.5%.

I suspect that if everyone started piling money into RS, Zopa and FC as part of their 15K ISA limit, then rates would be falling from where they are now, not rising to 8.0% +

cepheus

Thincats often present rates higher than that. Foreign based companies with IsePankur typically high twenties, obviously with greater risk.