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Economic bloom: rising inflation doesn’t have to be a big dill

Posted on 25/05/2017, by Joe Jones

As Britain’s keenest horticulturalists geared up for the third day of the RHS Chelsea Flower Show this morning, it was revealed that growing inflation has continued to put the squeeze on Britain’s economy. The Office for National Statistics (ONS) reported this month that consumer prices rose by an annual 2.7%, the highest since September 2013, largely on the back of the falling pound and an increase in the cost of oil.

This will generally have come as a big blow for Britain’s investors, who, in comparison, have experienced sluggish growth in average pay (just 2.2%). And it’s not only consumers that are feeling the pinch, as even the Flower Show itself has had to halve the number of ‘major Show Gardens’ at this year’s event (it’s still set to be just as flamboyant and extravagant as ever, though – more is less, and all that).

But, for those looking to stem the tide of rising inflation, there are options out there. One that is becoming increasingly popular is peer-to-peer lending (P2P), which, following the introduction of the Innovative Finance ISA in 2015, is expecting to see 400,000 new investors enter the sector by 2022.

The great rates available through P2P have made it an attractive alternative for individuals looking to beat inflation. It’s also appealing to those that want to avoid the ups and downs of the historically volatile stock market, or diversify their portfolios into new asset classes.

P2P is still untrodden ground for most budding investors, however, and it can be hard to know where to start. So, here’s our quick guide of what we think you should know about P2P, and what to consider when choosing where to invest.

Secured v unsecured

Not all P2P loans are the same. Some providers, for example, have rates of up to 10-12%. However, these are typically unsecured loans with a high element of risk – if the borrower fails to repay, you’re very unlikely to get all your money back.

Other options, however, invest in loans backed up by an underlying asset, such as property, which is less risky. At Octopus Choice, for example, all our loans are backed by bricks and mortar, and the underlying asset can always be sold should the very worst happen.

Further protection

A number of products also come with various types of safeguard for investors, such as a provision fund – a pot of money that can be used in the event of default as a sort of insurance policy. But providers don’t necessary contribute to the provision fund they offer, with borrowers often being the ones to pay in. We think there’s something to be said for having skin in the game – so we suggest you check if a provider has anything to lose, too, should the loan go bad.

At Octopus Choice, we invest 5% in each loan with you. This aims to add an extra slice of protection, as you will be owed your investment back before us, and receive interest due before we do, too.

Easy to get out?

Be aware that some P2P lenders will charge you to make a withdrawal, while others also restrict you from making any withdrawals at all, under a fixed term agreement. This might not give you the kind of flexibility that you’re comfortable with.

This isn’t the case for all platforms, though. Octopus Choice charges no fees, and customers can request a withdrawal at any time – though, of course, instant access can’t be absolutely guaranteed.

Track record

A lot of providers are relatively new to the game, so make sure to do your research and check they’re credible lenders. Of course, past performance isn’t a reliable indicator of future results, but here at Octopus, we have a team of expert property lenders that has, since 2009, lent over £2 billion and lost less than 0.1%.

Risks

Of course, as always, remember that your capital is at risk if you lend through Octopus Choice and lending is not covered by the Financial Services Compensation Scheme. Also, your tax treatment will depend on your individual circumstances and may be subject to change in the future. (You can read the full risks here).

Cultivating your cash

With inflation showing no signs of slowing down, you can’t be blamed for wanting to make your money work harder. With a target rate of 4%, Octopus Choice might be the option you’ve been waiting for. You can get set up in minutes and with a minimum investment of just £10 – just click here to get started.