Zopa has announced that it will launch its Innovative Finance ISAs or IFSA in June pending HMRC approval. Zopa believes demand for the new ISA will be high and said it will give priority access to existing customers.
In advance of the IFISA, Zopa is also revamping its investment products by introducing Zopa Core and announcing the retirement of Zopa Access and Classic.
Investors in Zopa Core will lend in the same risk markets as Access and Classic (A*-C) but will not be covered by the Safeguard fund. Zopa Core will offer a higher target return of 3.9% after fees and expected credit losses, as compared to 3.7% and 2.9% for Classic and Access. Zopa stated that Classic and Access will no longer be available for new customers, but existing customers can continue to lend through these products until 1st December, when they will be retired.
Zopa said the Innovative Finance ISA will be launched in four phases:
- The first stage (from 15th June) will be focused on existing customers who want to open a new IFISA (limit of £20,000) and lend through Core and Plus.
- The second stage (1st July 2017 to 31st July 2017) will enable existing customers to sell their current loans and re-purchase similar loans in an IFISA wrapper. This will allow investors to retain Safeguarded loans in the IFISA. Any investing through new lending, or relending as capital is returned, will be onto Plus or Core only.
- The third stage (from August 2017, but dependent on meeting demand for new IFISAs) will allow existing customers to transfer existing ISA investments with other providers to Zopa.
- Finally, once they have met demands of existing customers, they will accept investments from new customers.
From December 2017, new lending will not be subject to Safeguard. All loans that currently have this coverage will continue to receive it. This means that the Safeguard fund will be retired as of 1st December 2022, when all loans covered by the Safeguard fund would have matured. The Safeguard fund remains in strong health, with its expected cash coverage at 1.1, and coverage with future contributions being 1.2.
Safeguard was introduced in 2013 to ensure that investors only paid taxes on net interest income they received from Zopa borrowers. Tax laws were updated in 2015 enabling investors to claim for relief on losses from bad debt thus removing the primary reason for Safeguard. Last year, based on customer demand, Zopa introduced Zopa Plus – which is not covered by Safeguard. Zopa said this vhicle has proven incredibly popular and since March 2017, Zopa has been operating a waiting list for new Zopa investors due to demand.
“We’re proud of our 12-year track record of prudent lending and have always provided positive returns to our customers. Safeguard was introduced in 2013 to deal with a tax anomaly that had led to peer-to-peer lenders being unfairly penalised. Since winning our campaign to change the tax rules, we no longer need Safeguard – as customers have proved by flocking to Zopa Plus. Now it’s done its job, retiring Safeguard, allows us to provide greater expected returns to our investors (because on average we over-fund Safeguard) whilst making the investor products even easier to understand. We’ll continue to maintain Safeguard for the rest of its life, and continue to build on our reputation for world-leading credit risk management,” commented Andrew Lawson, Zopa’s Chief Product Officer.