* UK proposes allowing P2P investments in tax-free accounts
* Market could leap to 45 bln pounds in 10 years - Liberum
* Investment firms say details, regulation key to uptake
By Freya Berry
LONDON, March 21 Peer-to-peer lending, where
individuals lend money directly to small companies or other
individuals, could be set to take off in Britain after the
government proposed allowing such investments to be included in
tax-free savings accounts.
Keen to improve returns for savers struggling with low
interest rates and to help improve small companies' access to
credit, the government said in its annual budget on Wednesday
that it was looking at letting peer-to-peer (P2P) investments
into popular tax-free Individual Savings Accounts (ISAs).
Analysts at broker Liberum said such a move would be a major
boost for an industry which offers high returns, in exchange for
the higher risks involved. They forecast it could jump in size
to 45 billion pounds ($74 billion) within a decade, from less
than 1 billion now.
"I think it will be a tipping point," said James Meekings,
co-founder of P2P platform Funding Circle.
"Tax breaks allow people to lend to slightly more risky
businesses ... the challenges are the details of how it works
with existing industry."
P2P loans allow individuals to invest in a low-cost way,
usually via online platforms.
The government hopes the industry will help boost credit to
firms faced with a cut in bank lending, and assist savers
struggling with rock-bottom interest rates.
The average net return from investors using Funding Circle
is 6.1 percent. By comparison, a low-risk, cash ISA might offer
about 1.75 percent, the website moneysavingexpert.com showed.
Under the proposed new rules, on which the government is
consulting and has not set a date for implementation, P2P
platforms could be allowed to offer their own ISAs in
competition with providers of mainstream cash or equities ISAs
such as Fidelity and Hargreaves Lansdown.
With the P2P sector still so young and lightly regulated,
however, the traditional providers say growth is unlikely to be
quick, at least in the near future.
"P2P isn't ready to go into ISAs yet," said Danny Cox, head
of financial planning at Hargreaves Lansdown. "In its current
form, it's a relatively small and immature market, whereas we're
working with billions of pounds."
Cox said detail about the government plans - particularly
whether they would allow for the flexibility of transferring
money in and out of ISAs and the daily valuations his clientele
demands - would be crucial to determining eventual take-up.
P2P lending is also still largely unregulated, although that
will change in April when the Financial Conduct Authority plans
to announce a set of industry rules.
"Being an unregulated product in a regulated world, we need
to see what the products are like when they come out the other
side," Cox said.
Competition for the ISA pound is sharp and likely to
intensify given the sums involved.
Some 57.4 billion pounds a year is invested by adults in
ISAs, data from the Tax Incentivised Savings Association shows,
while Hargreaves Lansdown's Vantage ISA division alone is worth
13.6 billion pounds.
And that pie is only likely to get bigger after finance
minister George Osborne this week nearly tripled the ISA
allowance to 15,000 pounds a year.
($1 = 0.6057 British Pounds)
(Editing by Simon Jessop and Mark Potter)