A Guide to Property Bonds


Property bonds are a form of legally binding passive investment, which can be viewed as a ‘loan to a property development or construction company’. The bond allows the company to get started on their development of flats, houses etc.

For the investor, it gives them a fixed rate of interest over a particular (bond) period. Many investors like bonds because – unlike stocks and shares – there is no daily volubility and the loan is secured against the development. This means that were the company to go bust, their assets (i.e. homes) would be sold off in order to pay back the money to investors. In this sense, it’s regarded as a secure loan.

There will be a written contract for the bond, outlining the repayment terms and the duration of the loan. Once the bond is issued the legal charge (i.e. notification of the bond) is registered with the Land Registry Office, to be added to the property title for the development.

The reason property developers and construction companies use Property Bonds is that often they can’t get the full loan amount they need. The bank may see fit to give them 70 per cent, for instance, so the firm is forced to go privately for the remainder. It can also allow them to aim higher, at which point their profits should have increased too.

Why invest in property bonds?

Many developers like the consistent nature of property bonds i.e. the fact they’ll know exactly how much-fixed interest they’re getting, and for how long. Other reasons to invest include:

• The fact the loan is secured – like a mortgage – against a fixed asset (first legal charge over the physical property) which can be sold if the company goes bust;

• Interest is often higher (between six and 12 per cent) than other forms of investment ;

• It’s ‘hands-off’ i.e. there’s no having to deal directly with tenants, fork out stamp duty or pay maintenance fees as you would with a buy to let;

• There is usually the opportunity to exit early (although no further interest payments will be forthcoming);

• It’s another form of property investment diversification and which is, of course, safer than putting ‘all your property eggs in one basket’.

Tips for choosing a property bonds platform

As with other forms of property investing, carrying out due diligence is essential. Only property bond platforms boasting a lengthy and healthy track record of returns should be considered. Again, platforms which offer a first legal charge to the investor are the most secure and should be considered above all others. That way you are more likely to receive your investment cashback if the company falters.

Even if you are time-poor, always set aside several hours at least to check out the company’s reputation and reviews. Which development or construction companies do they work with and what is their reputation like too?

All About Asset Backed Investing


There are a number of different ways to invest in property in the UK. From vanilla buy to let to HMOs, care homes and commercial premises, the potential investor has a few options to choose from. For those who fancy an off-hands investing venture, there are peer to peer schemes and asset backed investing. It’s the latter we go on to discuss here:

Asset Backed Security (ABS) explained

ABS is a form of investing money in a business, organisation or individual etc, where the assets can be taken by the investor or sold in order to refund the investor his/her original cash in the event of the borrower defaulting on payment. Assets can be in the form of property, machinery, shop goods, corporate debentures etc. In this way, the assets are used as collateral. This means they provide a form of security for the investor should that company or individual go bust.

Having said that, a borrower having assets doesn’t always mean the investor will receive all the money he or she is due. That’s because the value of the assets may not cover the original sum. In addition, it may take some time for those assets to be sold in the first place. The money may also need to be divided between a number of investors.

How to invest in Asset Backed Security

ASB is achieved with the help of a third party, referred to as a security trustee. The trustee acts in the interests of both the investor and the borrower by facilitating the arrangement and guiding both parties through the process of setting up the arrangement. This is usually achieved via a dedicated account manager.

As time passes, the trustee will also ensure that the investment deal continues unhindered (i.e. the company doesn’t go bankrupt). He or she will then help both parties with the final financial transaction by carrying this out via their own banking process. This is the point where the investor receives his or her money back, together with interest in the form of a lump sum.

In the unfortunate event the borrower does go bust, the security trustee will step in and seize the borrower’s assets in order to pass them to, or sell them to the investor, in line with the amount he or she originally invested.

Benefits they offer to investors

• Much higher returns than investing in high street lenders or many other forms of finance.

• Security in the form of assets, were the borrower to go default with regular monthly payments or the end of the loan period.

• The asset value is expected to rise during the period of the loan.

ABS and Peer to Peer platforms 

Here at Sourced, it’s possible to invest in an ABS deal via our Peer to Peer platform. You’ll also have your own account manager to guide you through the entire process and keep you up-to-date on the borrower’s situation. You can find out about the Sourced peer to peer platform here and where you can receive returns of up to 12 per cent* on your investment.

*This is the maximum available rate on Sourced. Returns may vary. Your capital is at risk.

The pro’s and con’s to Peer to Peer lending

Peer to Peer Lending (also referred to as P2P or P2B – Peer-to-business) is the practice of borrowers taking out loans from individual investors who are willing to lend their own money for an agreed interest rate. It has become so popular in recent years (thanks mostly to poor returns and strict lending criteria from high street lenders), that today it can almost be considered a mainstream method for investors to earn better – rates of return.

An example would be Joan with £1000 to invest.

Understandably, Joan is keen to get more than the two per cent interest she is being offered by her high street bank for putting the money into a savings account. Instead, she invests the money into a Peer 2 Peer Lending Platform, which offers her an agreement of eight per cent return a year. That’s a huge six per cent increase on the savings account figure, meaning she will receive £80 on her loan investment, compared to the £20 with the savings account. Although Joan must remember that P2P lending carries additional risk, in comparison to a savings account.

There are many different types of Peer 2 Peer platforms in the UK. These can cater for different types of borrowers and offer different levels of security and returns for investors. Some borrowers will lend money to complete building projects, for instance, or to buy a new car. Security on the loan varies, and comes in the form of other assets, such as where the property is used as collateral.

More often than not, the riskier the loan, the higher the rate of return. For instance, Greg is a builder and is looking to borrow £100,000 to complete a house on a piece of land that he owns. He intends to sell the house for £150,000 once complete.

But Greg has struggled to raise the money he needs for the house from his high street bank. So, instead, he has turned to a Peer 2 Peer Platform to borrow it. This is agreed with the proviso that he is willing to pay investors a 10 per cent interest rate for a 12-month loan. The conditions also assert that he gives the investors a first legal charge over the land as security. This means the investors would jointly become the landowners, should Greg default on the loan and fail to make repayments.

Peer 2 Peer Lending is regulated in the UK by the Financial Conduct Authority (FCA), whose job it is to ensure every platform operates according to strike regulations, particularly in regard to the protection and treatment of client money and to ensure each loan opportunity is legal and transparent.

Pros of Peer 2 Peer Lending
● Peer 2 Peer lending can start from as little as £10
● There are a variety of loan terms and returns for investors with different risk appetites
● Peer 2 Peer platform providers often have strict lending criteria and undertake thorough due diligence on all investment opportunities and on borrowers – which can give comfort to investors using their own money
● Investors often (but not always) receive regular interest payments, either monthly or quarterly and in proportion to the amount they have lent

Cons of Peer 2 Peer Lending
As with every type of investment, Peer 2 Peer Lending carries risks. There is no guarantee that an investor will be repaid the money that he or she has lent to a borrower via the platform – to the extent they may lose the entire sum of their investment. That’s because borrowers might be unable to pay back the loan, and the funds an investor lends through a Peer 2 Peer platform are not covered by the government-backed Financial Services Compensation Scheme (FSCS).

Tips for investing in Peer 2 Peer Lending
Before committing to loaning money on a Peer 2 Peer platform, every investor should do their own thorough due diligence. Investors should try, where possible, to reduce their exposure to one type of lending opportunity or borrower. In fact, this diversification tactic is a popular practice among seasoned investors.