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Can I use peer-to-peer lending for a £25,000 loan? I have to work part-time so I can care for my mum

Dave | Hertfordshire| 27/11/2018 | 1

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Dave's question in full

I'm the sole carer for my chronically ill and elderly mum, as well as a full-time police officer. I have no other family apart from her. Due to mum's condition, and due to the fact that I'm exhausted performing both roles, I think the only option is for me is to go part-time, as she really won't accept help from anyone else. (After almost 24 years of frontline service in one form or another I had hoped for a bit of support from work, but this has not been forthcoming). To allow me to go part-time, perhaps 16 hours less per week of a 40 hour rostered week, I will need about £25,000 to maintain something near to my current lifestyle, until March 2020 when I will be retiring after 25 years pensionable service. (I’m confident of getting another job shortly thereafter). 10 months later, in January 2021, I will receive a commutation lump sum of about £50,000. I have a sizeable fund portfolio under an ISA wrapper with Hargreaves Lansdown. That is doing very well, so I don't really want to sell any of these funds and 'lend myself money' from that. I also have other investments, but these are not readily available to draw upon. My ideal funding solution would be a bond-type IOU agreement, where 'someone' lends me the money and I either pay them back in full plus an agreed interest rate in January 2021, or pay them the interest on a monthly basis and the lump sum back on that date. Are you aware of a peer-to-peer site that could assist, as I've not been able to find any? Such a site would probably be preferable to trying to seek out an individual who may be interested in this type of arrangement. (That I would obviously get drawn up legally via a solicitor at my own expense). Thanks

Holly Mackay's Response

Hi Dave,

Thanks for your question.

I'll do my best to help, but I should first say that I'm not a qualified financial adviser and neither do I know your full financial situation, so these are only some general thoughts.

I'm sure you're absolutely exhausted doing both a full-time job as well as caring for your mum. It can be very isolating making these sorts of big financial decisions on your own – the responsibility can feel huge, especially if you're under such emotional and financial pressures – so I really do wish you well.

If you want to talk to a financial adviser, did you know that some will give you advice for an hourly rate and it may be worth it – have a look at VouchedFor for advisers in your area? Hourly fees are around £150 - £200.

The bottom line seems to be that you've got to generate some funds over the next two years, to support what will be a part-time income. You indicate that this is a gap of about £25,000, so the question is where do you get this £25,000 from?

I'm quite a simple person when I think about money. So I think that any options which get too complicated are when people tend to get into trouble. When we try and turn this into alchemy.

One of your options is that you say you've got a sizable fund portfolio in an ISA with Hargreaves Lansdown. You say it's doing very well, so you don't want to sell any of these funds. My first observation, is that you're thinking about this in a year where in August we celebrated the longest bull market since World War II, with markets inching up since 2009. So most funds are doing really well.

Now the question is, what if (and I'm not saying they're going to) the global markets fell by 20% next year? You're reluctant to sell your funds now because they are doing very well. But these are volatile times. At some point these funds will have a dip.

So ask yourself - if there were going to be a global meltdown next year (again, I'm not suggesting that I know there will be, but there will be a market correction at some point), would you still feel the same way about this? Would you regret not having sold and just banked the certainty and the money? 

You say your ideal funding solution would be a bond-type IOU agreement, where someone lends you the money. If you were a massive institution with large sums of money, you could do a deal like this. They're called 'over the counter' deals. However there are costs involved with any of these deals, in drawing them up. You mentioned legal fees as an example. So for the relatively small sum of money we're talking about, that's not going to be an economically feasible option for you to look at.

You ask if there is a peer-to-peer site that could help - I'm very suspicious and hesitant about all this peer-to-peer lending and Innovative Finance. It comes with massive risks, which I think people underestimate. There’s not such thing as a free lunch and my initial gut reaction is to tread very carefully with this.

The bottom line is that you could borrow this money, but you're going to incur fairly substantial interest rates on whatever deal you come to. This won't be Bank of England interest rates. You're going to be seen as a riskier proposition, so people will want a higher rate of return from you. And the bet you are taking is that this interest rate will be less than the return on your ISAs which you are reluctant to cash in.

I feel as if you have enough complexity in your life, so probably the lesser of all evils would be to draw an income from your current ISA. Rather than liquidate it all now in one hit, you could set up a monthly sell plan to pay out a monthly income? One other thing to highlight is that once you take the money out of the tax-free ISA, you can only put back in up to £20,000 a year into this tax-sheltered account. 

Of course you lose the tax perks of the money in there, but it will do the job that you need for next two years, in the least complicated way.

Sorry to not be able to give you an answer that you'd prefer to hear – I don’t see any easy answer to this but would suggest it’s probably a question which is as much about peace of mind and no extra time-consuming complexity – as it is about purely financial matters?

Best of luck,

Holly

Our Expert

Holly Mackay

Holly Mackay

Founder and MD Holly Mackay has been working in the investments space since 1998. She read Modern Languages at Oxford, with a special focus on Mediaeval French which was deeply interesting and arguably utterly useless.

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