Best Innovative Finance ISAs In 2024

What are the best Innovative Finance ISAs?

The best innovative finance ISAs are these nine, which offer a market-leading risk-reward balance:

• CapitalRise IFISA. (Minimum £1,000 per loan.)
• CapitalStackers IFISA. (Minimum £2,500 per loan.)
• CrowdProperty IFISA. (Minimum £500 that can be split across 10 loans.)
• Housemartin IFISA. (Minimum £1 per loan.)
• Invest & Fund IFISA. (Minimum £2,500, split across 10 loans.)
• Kuflink IFISA. (Minimum £1,000, split across many loans in a pool.)
• Lendwise IFISA. (Minimum £1,000, split into as many as 100 loans.)
• Loanpad IFISA. (Minimum £1, spread across all outstanding loans.)
• Proplend IFISA. (Minimum £1,000 per loan.)

I'll take you through all of these extraordinarily high quality lending accounts shortly. And at the end I'll have some further suggested reading for you.

But first, here's a bit more information about this list:

What features I want to see in an IFISA

I want to be convinced that lenders who spread their money across a batch of the best Innovative Finance ISAs, and plenty of individual loans, will come out with firmly positive results throughout any major recession or property crash.

I want to see professional loan monitoring and rapid steps taken to recover any loans that turn bad. I absolutely need to see that the P2P lending companies are very open, sharing a lot of information with us, so that we can be confident in our assessments.

All the best IFISAs are direct lending – P2P

All the Innovative Finance ISAs I've selected do peer-to-peer lending, as defined by 4thWay.

4thWay's focus is P2P, because the direct lending it enables between lenders and end borrowers substantially reduces the risk of making losses in the event the IFISA provider in the middle closes down.

Two features that aren't important in IFISAs

Rapid access is not important – here's why

I don't care about rapid access and I don't consider it a good criterion for selecting an Innovative Finance ISA.

As regular readers know, my position has always been that if lenders really think they will need and want rapid access under all circumstances, they should lend less money or no money through IFISAs and P2P lending accounts.

You must assume that a lot of your money will be lent until it is repaid by the borrowers, because sometimes this is precisely what lenders will have to do.

Why, you may ask? Because that is the nature of money lending. The natural life of the investment is from the time the borrower borrows until the time the borrower repays in full. In a way, getting your money back early is “unnatural” for this investment. Certainly, rapid-return features work most of the time – but you can't expect to fight nature all the time!

Smooth performance of every loan is not important – here's why

I also, personally, don't care if the type of lending that you can do in the IFISA typically leads to a lot of loans turning bad and which need a long time for you to recover your money. This is provided we can expect that the recovery on that bad debt is going to be very high and that interest rates will easily cover the remaining risk.

All that said, no IFISAs with that sort of bad-debt profile are currently making my best Innovative Finance ISAs list.

CapitalRise Innovative Finance ISA

A professional outfit with perfect results from mostly senior lending secured against property. Senior lending meaning you're repaid first in the event the borrower has problems and the properties need to be sold.

This one is available to people classified as sophisticated investors or as certified high-net-worth individuals only.

CapitalRise takes an interesting contrarian view and focuses on prime London property lending, which is where others are cautious.

Yet the reality is that it's been a resilient niche for decades, supported by the increasingly wealthy super rich, and with low bad debt to lenders.

Interest rates and bad debts

CapitalRise has had just a few late loans since it started in 2016. It now has a couple of bad debts, which it is in the process of recovering. It builds a very lengthy safety margin into its loans in the event that property developments face delays.

The CapitalRise Innovative Finance ISA* has been paying 7%-11% lending rates, after arranging £292 million in lending through its online platform. While bad debts will rise in some downturns or property-market crashes, I expect them to be contained.

How to lend

I favour spreading money across as many CapitalRise loans as possible, although sticking to one tranche of a loan when developers are receiving money in stages.

I prefer lending in later tranches at the same interest rates, as more of the risks and uncertainties on the development are in the past.

But in the event that you have a lot of money to deploy or CapitalRise has a weak month or two in terms of approving loans, the risks are still very well contained in the first tranche.

For CapitalRise’s very rare junior loans – its mezzanine loans – I prefer lending when the total loans are for less than 70% of the expected sale price. The total loans means all the tranches and loans from CapitalRise and the senior lenders combined.

The minimum lending amount is £1,000 and you always choose your own loans.

Visit CapitalRise* or read the 4thWay CapitalRise Review for more stats and information. Also, check it out in our IFISA comparison tables.

CapitalStackers Innovative Finance ISA

CapitalStackers has been paying the highest returns of all these providers since 2014.

The CapitalStackers Innovative Finance ISA* achieves higher returns, mostly in property development lending, by putting you in the riskier part of the “stack”: you are junior to one or two other lenders, meaning you get paid last in the event of a bad debt and the property needs to be forcibly sold to get your money back.

However, CapitalStackers' team is loaded with development experience, pragmatism, excellent skill with numbers, resourcefulness and integrity.

CapitalStackers also contains the risk with a good cap on the amount borrowed. The average loan size is 64.38% of the initial property value or the expected sale price of the development.

Interest rates and bad debts

The unluckiest lender ever on CapitalStackers has earned “just” 5.64% on one loan, while the highest earner has achieved 30.60%. The average return has been 13.41%.

CapitalStackers has had loans that required close monitoring and working with the borrowers to get the development project finished. Their experience in property helped them get those developments finished and sold.

Now, CapitalStackers has a couple of loans that seem likely to lead to losses for the directors and related parties of CapitalStackers, who take the first loss. Even if the losses were to leak to other lenders, the overall returns for CapitalStackers lenders will still be highly impressive.

How to lend

CapitalStackers approves few loans: maybe a dozen a year. You should try to take part in as many of them as you can to spread your risk. There is no auto-lend feature.

The minimum lending amount is high at £2,500 per loan.

Visit CapitalStackers* or read the 4thWay CapitalStackers Review for more stats and information. Also, check it out in our IFISA comparison tables.

CrowdProperty IFISA

An excellent record on development lending combined with strict, professional and rigorous risk-assessment, loan-approval, loan-monitoring, and bad-debt recovery processes.

Interest rates and bad debts

The CrowdProperty Innovative Finance ISA is paying 9.92% to lenders. Lending rates have been boosted substantially to combat inflation and higher savings rates.

CrowdProperty's borrowers are high quality. Out of £425 million in lending, there have just been a few loans with small losses totalling less than 0.1% of all lent amounts since it started in 2015.

I expect more losses to come in the next 12-24 months, as quite a few loans are currently delayed and a small number of those are likely to not repay in full.

CrowdProperty leaves headroom for borrowers to take longer to complete developments and sell their properties, so that lenders have the highest expectations of getting all their money and interest in most loans, most of the time. As usual for these kinds of loans, developers don't make a penny until all lenders are paid in full.

How to lend

CrowdProperty's optional auto-lend is useful, provided you cap the amount that will be lent in any one loan. Otherwise, ensure that you take the time to lend across as many loans as possible. Try to build up to a couple of dozen at the least.

With manual lending you need to lend at least £500 per loan. With auto-lend, you lend at least £500, but you can choose to lend as little as £50 per loan. You can use both manual and auto-lend simultaneously.

If using auto-lend, you could put less money in to begin with and top it up after some of it has been lent out. This ensures that your money is not sitting in CrowdProperty’s investor account for several months without earning interest.

Visit CrowdProperty or read the 4thWay CrowdProperty Review for more stats and information. Also, check it out in our IFISA comparison tables.

Housemartin Innovative Finance ISA

These are very different property loans to what you have done before. You're lending against properties leased to charities and housing associations, often with government funding, to assist people in the supported-living scheme.

Not only are you lending against tenanted properties – which is relatively rare – but you earn interest that is usually tied to inflation-linked rents.

If all that sounds too boring, to make it interesting, you also take profits – or losses – when the property is sold.

Interest rates and bad debts

Lenders in the Housemartin Innovative Finance ISA* consistently earned between 5% and 7.5%.

The only loan that was loss-making overall – just negative £300 after interest earned – has been when lenders voted for a property to be sold quickly (yes, you can vote with Housemartin too), because it meant they could take advantage of an even better loan on Housemartin. So they deliberately chose to lose money on that deal as it meant making more in another deal.

How to lend

You are tied to the fortunes of property prices when selling your loan parts (or voting for the property itself to be sold to repay the entire loan to everyone). Thus, you should be looking to lend for longer at Housemartin, in the same way that a landlord will sensibly have longer horizons before needing to sell.

These could be loans for the medium-to-long term – so over five years.

You choose your own loans and you should currently expect that it will take quite a few months to spread your money into enough loans to build a reasonable portfolio.

Visit Housemartin* or read the 4thWay Housemartin Review for more stats and information. Also, check it out in our IFISA comparison tables.

Invest & Fund Innovative Finance ISA

An extremely solid investment that would fit in any lending or investment portfolio.

Invest & Fund's focus on residential property lending is one of the more stable and secure kinds of development lending. House prices over the medium term are supported by a housing shortage that has endured – and increased – for several decades.

Interest rates and bad debts

Due to professional and high standards, the condition of the loan book remained very strong through the pandemic and beyond, which is a testament to Invest & Fund's abilities.

Invest & Fund approves loans that are considerably lower than the property valuations and most loans are senior debt, putting you first in the queue to get your money back with interest in the event that any loan turns bad.

The Invest & Fund Innovative Finance ISA* is paying 8.02% to lenders after lending fees. Interest rates are attractive for the low risks involved and highly sensible for the risk-reward balance.

From time to time, Invest & Fund approves junior loans with known borrowers that pay interest of 15% or more; these loans have established a perfect record in being repaid in full.

Invest & Fund has virtually always managed to get loans repaid within the original due date since it started in 2015. Out of £340 million in lending, it has had just a few loans that suffered some very minor issues before repaying in full.

How to lend

Sophisticated and professional investors may choose individual loans, if they want. Everyone else lends automatically. No more than 10% of your Invest & Fund pot is ever allocated to a single loan.

You could put money into Invest & Fund in several stages, a few months apart, to increase your chances of having your money spread across dozens of loans more quickly.

However, if your money is being allocated too slowly, you can withdraw unlent money from your IFISA and then try re-lending it again a month or two later. But: bear in mind the ISA rules on withdrawals. Invest & Fund's ISA is a flexible ISA, which means you can withdraw and re-deposit new ISA money in the same tax year (from 6th April to 5th April) without losing your ISA allowances.

Therefore, you probably won't want to put money in during March and then withdraw it to your bank account at the end of April, as it will mean you lose some of your ISA allowance for the just-gone tax year.

The minimum you can put into your Invest & Fund IFISA is £2,500 and the smallest amount you'll lend in a loan is £250.

Visit Invest & Fund* or read the 4thWay Invest & Fund Review for more stats and information. Also, check it out in our IFISA comparison tables.

Kuflink IFISA

Kuflink's P2P lending platform started in 2016, but the wider business has been lending since 2011 with an excellent record over more than a decade.

Its focus was initially on bridging with just a small number of development loans. Over the past four years it has been split somewhat more evenly between the two types of lending.

Interest rates and bad debts

Out of more than 700 loans and £376 million in lending, just a small number of loans have suffered losses amounting to less than 0.5% of the total ever lent since 2016. Those losses have all been covered by Kuflink and so lenders have not taken any hit to date.

Even if Kuflink had not taken any of the loss itself, all lenders would still have found it easy to make a profit.

The two-year Kuflink Innovative Finance ISA* is targeting 8.75% lending interest rates after bad debts.

Kuflink's website sometimes shows higher rates than 4thWay do, because we have standardised the calculation so that all its rates are comparable to other P2P lending companies and because this better reflects reality.

How to lend

Your money is spread across all the loans in the pool and it redistributes your money as loans are repaid and new ones enter the pool. Kuflink tells us this is a lot of loans.

The minimum lending amount is £1,000. Thereafter you can add in increments of £500.

Visit Kuflink* or read the 4thWay Kuflink Review for more stats and information. Also, check it out in our IFISA comparison tables.

Lendwise Innovative Finance ISA

Lendwise is another new one on this list, and it's a real breath of fresh air: it's not property lending! It's good to diversify a little.

Lendwise involves lending to highly motivated post-graduate students to fund their studies, particularly when they're pursuing higher-paying careers.

Interest rates and bad debts

Lenders should generally be on track to earn around 8.12% after bad debts in the Lendwise Innovative Finance ISA*.

Even in these less-than-perfect economic times, bad debts are typically going to be just 1-2 percentage points per year, on an annualised basis. There's a lot of room to take more bad debt, if necessary, but you usually shouldn't expect these kinds of borrowers to suffer as badly as other prime borrowers during a severe recession.

Lendwise approves a lot of loans, so you can spread across many of them very quickly.

How to lend

Auto-lend options allow you to set limits on how much you put into a loan, so set it so that you can spread across 100-150 loans as quickly as possible.

The minimum amount you can put into the Lendwise IFISA is £1,000, but then you can lend as little as £10 per loan.

Visit Lendwise* or read the 4thWay Lendwise Review for more stats and information. Also, check it out in our IFISA comparison tables.

Loanpad Innovative Finance ISA

This is insanely safe lending to add even more balance to your overall lending portfolio.

The loans have the best security in the UK's P2P lending and Innovative Finance ISA industry. They are typically for around one-third of the valuations of the property and for a maximum of 50% of the valuation.

Partner companies with decades of lending experience will lose their money before you, as they take a very large first loss by lending more to the borrowers in a separate, junior loan.

Interest rates and bad debts

The risk of losses on any individual loan is lower here than anywhere else. With lenders' money automatically spread across all outstanding loans, it's not conceivable that you'll make an overall loss.

Indeed, it's highly probable that you'll barely notice the difference to your overall interest rate even if there's a severe recession and property crash.

This explains why the lending rates in the Loanpad Innovative Finance ISA* are the lowest of all my selections at 6.5%.

Loanpad has had its share of loans that have missed payments and one or two that were technically bad debts. However, competent bad-debt recovery and the quality property security has seen these off with no losses to lenders.

Loanpad's professional team has helped to arrange £277 million in lending.

How to lend

Your money is automatically spread across all loans and adjusted as new loans come in or are paid off.

The only decision to make is choosing between the two accounts. Clearly, the Loanpad Premium IFISA is best, paying 6.5%. The other account pays a little less for potentially earlier access, but I've already explained that rapid access is not an essential feature of the best Innovative Finance ISAs.

Visit Loanpad* or read the 4thWay Loanpad Review for more stats and information. Also, check it out in our IFISA comparison tables.

Proplend Innovative Finance ISA

Proplend's best loans offer attractive interest rates with extraordinarily good property security.

The fact that most Proplend borrowers are receiving rent against their residential and commercial properties adds an additional strong layer of safety not seen in most property peer-to-peer lending.

Proplend has a wide range of different types of borrowers, with properties from petrol stations to vineyards and from office blocks to residential flats. This spreads the risks in the event certain kinds of borrowers are impacted by a downturn more than others.

Interest rates and bad debts

The Proplend Innovative Finance ISA* has been paying 7.49% on its lowest-risk, senior loans, called tranche A loans. This is a phenomenal rate of interest for these loans.

These are mostly properties receiving rent that is 1.1 or 1.25 times the monthly loan payment. All of these loans are for no more than half the property valuation. That's market leading. It gives very strong cover in the event a borrower becomes unable to pay, and the property needs to be sold.

Proplend has a near perfect record since it started in 2014. Lenders have received almost every penny of their money back and interest due to them. Out of £240 million lent, there has been just one loan where lenders who chose a higher-risk, junior loan lost some money.

At just £40,000 in total losses, lenders have earned over 600 times as much money in interest, with around £26 million paid out to lenders. No lenders who have spread their money across lots of loans will have come remotely close to losing money.

Just one bad debt is outstanding, which is being managed by Proplend. Even if recovery attempts failed to get all of lenders' money back on this, it's a drop in the ocean. Diversified lenders will still easily expect to make a lot of money overall.

How to lend

I like to use its “AutoLend Self Select” feature to select property loans at Proplend that have all four of the following characteristics:

• “Tranche A” loans, which means the loan is for less than half of the property valuation (50% LTV or less).
• Loans that have never been renewed or rolled over, in order to reduce the risk of being caught out with a problem borrower that tries to kick the can down the road.
• The loans are based on commercial properties that are already receiving more in rent than the monthly loan payments to Proplend’s lenders.
• The loan is not connected to any other loans that I am already lending in, which usually means that it’s not to the same borrower.

While Proplend's other loans are also attractive, these particular loans have paid lenders exceptionally good returns after lending fees ,with no losses, and with a huge level of property security. A highly satisfactory reward for the risks involved.

I am also completely comfortable putting some money into tranche B or even tranche C, which come with higher interest rates.

If you have a lot of cash to deploy, you might want to simply lend in all loans that become available. Even though you're taking on some higher-risk loans, the spread of risk across lots of loans provides your protection.

The minimum you can put into a loan is £1,000.

Visit Proplend* or read the 4thWay Proplend Review for more stats and information. Also, check it out in our IFISA comparison tables.

4thWay articles linked to above

4thWay's Definition Of Peer-To-Peer Lending.[/left_bar_highlight]

And now read even more: 

The Peer-To-Peer IFISA Guide.