Hargreaves Lansdown in talks on P2P lending tie-up

Hargreaves Lansdown, Britain’s biggest online investment platform, is in talks with peer-to-peer lenders about allowing its clients to deposit cash with them – and earn more than 6 per cent interest tax free through an individual savings account (Isa).

P2P lenders match depositors willing to lend money with borrowers seeking loans, and have become among the fastest growing exponents of “alternative finance” in the UK. In the first three quarters of 2014, they advanced more than £900m to consumers and businesses, according to the Peer to Peer Finance Association – and this year’s lending total is set to eclipse the previous three years put together.

Under proposals in the March Budget, these loans – and the interest from them – are likely to become eligible for Isa tax treatment from late 2015, and Hargreaves has confirmed it has spoken with RateSetter and other platforms about a tie-up to give its 662,000 clients access to P2P investing.

“At this stage we are fact-finding and looking at a number of different options,” said Danny Cox, head of financial planning at Hargreaves. “P2P is a relatively immature but rapidly growing market. It’s one we are taking an interest in. We can see that alternative lending is becoming an increasingly popular investment for clients.”

Interactive Investor, one of Hargreaves’ online rivals, has also said it is talking to at least three P2P platforms about a tie-up.

Many UK investors have been attracted to P2P lending as it can pay significantly higher interest rates than any high-street savings account. RateSetter – which lends only to individuals and claims to be the UK’s largest P2P platform by monthly volume – currently offers an annualised return of up to 6.1 per cent over five years.

Mr Cox said early adopters of P2P lending have much in common with Hargreaves’ customer base. “It’s people who have money to invest, private client investors – very much the same types of people who are using Hargreaves’ Vantage platform,” he argued.

Hargreaves still has some concerns about P2P lending, however. It has questioned whether the “provision funds” set up by platforms to compensate lenders when borrowers default could cope with a rise in bad debts. Critics of P2P warn that when UK interest rates rise from their current historic low, borrowers will be put under strain by higher mortgage and other credit payments.

But Rhydian Lewis, chief executive of RateSetter, said he believed traditional investment firms were looking at P2P “defensively”, having spotted the potential for alternative finance to erode their customer base. “Our lenders are silver surfers. They’re the mass affluent,” he said.

Hargreaves said in October it had decided not to apply for a banking licence for its new cash service because of the levels of new regulation being imposed on banks.

The fund supermarket holds £47bn of assets for UK retail investors in funds, stocks, bonds and cash – but its share price is down 16 per cent over the past year as it has failed to gain as many new customers as analysts forecast.