Peer-to peer-property lender and investment platform LendInvest has launched a five-year bond paying 5.25 per cent a year for investors with a minimum of £2,000.
In an era of one per cent savings rates and where yields ranging beyond 5 per cent are hard to come by in the equity markets, this deal is sure to whet the appetite of many investors – particularly as it comes with twice-yearly payouts.
However, as with any investment proposition, there are a number of key considerations to mull over before injecting your hard earned cash into the product.
The LendInvest five year retail bond promises to pay investors interest of 5.25 per cent on two occasions every year in exchange for a minimum initial investment of £2,000
What is on offer?
One thing to flag first is that this is a retail bond and is therefore not covered by the Financial Services Compensation Scheme, which covers investors in regulated products up to £50,000.
It is listed on the London Stock Exchange’s Order Book for Retail Bonds, however, which means there stock exchange regulations it must comply with. It can also be bought and sold on this secondary market.
These factors make retail bonds stand out from mini-bonds, which come with much less regulation and no official secondary market.
The bond pays investors 5.25 per cent in annual interest payments, to be made on 10 February and 10 August every year until maturity, at which point it promises your capital back in full.
Payments will be made in arrears in equal instalments of £2.625 per £100.
The firm said investors will be able to sell the bond before it reaches maturity because it is listed but supply and demand will influence the price that you can sell at.
The minimum investment threshold is £2,000 but the bond is available in multiples of £100 thereafter.
You can invest in the product through the following brokers: AJ Bell Securities, Alliance Trust Savings, Barclays Bank, Equiniti Financial Services, Interactive Investor, Redmayne-Bentley and Syndicate Room.
The offer period opened on 19 July 2017 and is expected to close at 12 noon on 4 August 2017.
What does it invest in?
What is a bond?
A bond is essentially an IOU issued by a firm which offers a fixed rate of interest, called the coupon rate, until the bond reaches its maturity date and the principal amount becomes due.
Some or all of the original invested capital may be at risk – depending on the success of the project invested in.
LendInvest lends money to landlords to buy property and also issues bridging and development loans.
The loans are always secured against property.
Investors putting money in through its peer-to-peer platform can choose specific properties to lend against.
The bond is not secured against a specific borrower’s property in the same way because you’re purchasing notes, so you’re getting exposure to a spread of properties LendInvest chooses to lend to.
If borrowers default or fail to keep up with repayments, the company reserves the right to seize and sell their property to recover investors’ capital.
The company manages £412.5million in assets from UK and international investors who invest via the firm’s online portal, two funds overseen by LendInvest Capital – the company’s fund management and advisory arm – and four dedicated funding lines bankrolled by big business both at home and abroad.
The funds generated by the bond will constitute a fourth funding source.
Christian Faes, chief executive of LendInvest, said: ‘As we continue to scale the business, we’re increasingly looking to diversify our funding model and expand our capacity to lend to underserved borrowers, as well as to create new entry points to an attractive asset class that suits a broader range of investors seeking competitive risk-adjusted returns.
‘The launch of this bond allows us to achieve both of these ambitions, supporting future growth goals.’
How does it compare?
Investing in property through retail bonds is nothing new.
Just last month Minerva Lending launched an asset-backed five-year listed bond that aims to offer fixed returns of 7 per cent gross a year.
The minimum investment into the bond is £1,000.
Of course there are other ways of getting exposure to real estate – the most obvious being buying a property to let outright. This route, however, has become a less attractive in recent times because of the unfavourable tax changes affecting buy-to-let landlords.
Real estate investment trusts, commonly referred to as Reits, can also be a good and tax efficient way of investing in property. They benefit from a double layer of corporation and capital gains tax relief on returns.
Another option is to invest through a peer-to-peer platform that specialises in property lending. These are offered by the likes of LendInvest and rivals Landbay and Octopus Choice. The introduction of the Innovative Finance Isa last year adds to the allure of these propositions as returns earned through fully regulated peer-to-peer investments in the IFIsa are tax free.
You can compare platforms here.
You can also invest in property by going directly to a developer or Property Partner, which has launched its own version of a stock exchange that allows you to trade shares in limited companies that own buy-to-let properties.
Each of the aforementioned solutions poses different risks so investors should do their homework before taking the plunge.
This is Money verdict
LendInvest’s bond is certainly eye-catching as not many investment vehicles promise to deliver returns which exceed the 5 per cent figure in this day and age.
With the retail bond market having been quite in recent years, it is likely to spark considerable interest from investors.
However, as with any investments, there are risks to factor in. Investors will have to put their faith in LendInvest’s eligibility criteria to sift out the chaff from the wheat to ensure that borrowers will have the capacity to make repayments.
The company claims that if worst comes to worst, it will seize and sell properties from borrowers who have defaulted on repayments on multiple occasions to recover investors’ capital.
That’s all very well and good but the process of selling property takes time, and those who attempt to rush the process run the risk of selling on the cheap.
The old adage of fortune favours the brave is somewhat true when it comes to investments. Fund houses try to entice people to their riskier propositions by offering high returns. Investors should consider their capacity for loss before putting their cash into risky propositions.
There are a host of key considerations to factor in when it comes to sizing up bonds as a prospective investment solution. Our guide on bonds explores these in greater detail.
One key element is to make sure that you do not have all your eggs in one basket. Individual bonds should be held as part of a diversified portfolio of different bonds from companies that do different things.
What you need to know about retail bonds before you buy
· Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet.
· When looking at bonds, research all recent reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results on This is Money here.
· Check the cash flow is healthy and consistent. Also look at the interest cover – the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. A guide to doing investment sums like this is here.
· It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.
· Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.
· Inexperienced investors who are unsure about how retail or mini-bonds bonds work or their potential tax liabilities should seek independent financial advice. Find an adviser here.
· If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.
· If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found on This Is Money here.
· Investors should bear in mind that it can be harder to judge the risk involved in investing in some bonds than in others – it is easier to assess the likelihood of Tesco going bust than smaller and more specialist businesses.
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