Property Bond Options

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Maturity Period Account Type Open With Interest Rate
2 Years Fixed Rate Development bond £10,000.00 8.50%
2 Years Fixed Rate £5,000.00 7.37%
5 Years Fixed Rate Development bond £15,000.00 9.25%
5 Years Fixed Rate £8,000.00 8.25%
10 Years Fixed Rate Development bond £18,000.00 10.00%
10 Years Fixed rate £11,000.00 9.60%

What is a Property Bond?
Property bonds, otherwise known as property investment bonds are a means for developers to raise money from investors in the form of a loan. The intention is to fund the projects during the earlier stages of development. Generally, the bond it is a legally binding agreement between the investor and the property developer. The investors' capital is offered as a loan to the development company and the contract between them explains how the investment will be used, the interest payable for the investment, how the capital will be secured and when the investment will be repaid to the investor.

How do Property Bonds Work?
Any company may issue bonds as means of raising finance. With property bonds, these are usually issued by developers, or construction companies for the purposes of funding property development. To protect the investors' capital against loss, once the bonds are issued they are secured against the property, or land with a legal charge. These charges offer collateral and security for investors and are registered on the property title at the Land Registry Office. Depending on the terms of the agreement (usually 2-5 year) the lender (investor) will be paid a rate of interest after which point the bond matures and the loan amount is returned.

What is a charge on a property?
When a legal charge is applied to a property bond it brings with it a great deal of security. It ensures that the investors' capital will be repaid even if there is a default and the development company can not fulfil their obligations, as expected. This is done by securing the loan against assets that will be sold to return the investors' capital, in the event of the worst case coming to fruition. Where there is a legal charge within the bond, investors can feel more comfortable investing their money, given this degree of security provided. Usually, the firm that issues the bond will have the right to seize the development, or whatever assets have been pledged as collateral to ensure the investors' capital is safe. Essentially, this type of charge is very similar and works in the same way to what you might have come to expect when taking out a mortgage on a house, for example.

What if the development company becomes insolvent?
Any property bond worth investing in will structure the asset-to-liability ratio so that the debt is covered. This means that in the event of a default from the development company, the investors' capital will be repaid via sale of assets that were used as collateral. These measures ensure that your capital is protected, once invested.

Why Wouldn't Property Developers Simply Borrow from the Bank?
Most developers do borrow from banks and other finance providers, however, in the case of large development projects, banks may not cover the full amount required. If traditional finance fills 50-75% of the required investment, there is still a significant gap to fill and this is where property bonds can be a useful tool for raising the remaining capital which is needed. Using private equity for development projects gives property firms access to greater funds, meaning they can take on ambitious projects and ultimately make more money.

What makes a property bond a desirable investment?
There are several factors that make property bonds attractive to investors. Some of these factors include the following:

Fixed interest rates
Property bonds usually have fixed rates of annual interest over a fixed term. The amounts repaid are usually regular income payments, or in one lump-sum at the end of the agreed term for investment.

Asset-backed Investment
Investors often look for options where their capital is protected and investments that are secured against property and land are considered some of the safest options available.

Flexible Exit Options
Typically, early exit options are available for investors within property bond agreements. This early exit 'clause' allows the investor to end the agreement before it's due date for termination, allowing the investor to gain access to their capital earlier. However, taking advantage of this early exit clause will often mean that the investor will have to forgo any due interest payments that were due.

The Convenience Factor
Investing into property bonds can be a far simpler and hassle-free process, when compared with a standard investment into a property. When you look to invest into a property with the intention of acquiring a profit, there is often many things that need to be considered before you approach the UK property market. Some of the factors that you would typically have to address when investing directly into the property market would be council tax, involving estate agents and tenancy challenges, stamp duty, insurance repayments, maintenance fees, etc. Property bonds offer a far simpler option for investors, akin with stocks and shares, but offering far lower volatility and far more security. They allow investors to simply invest their capital and take a more hands-off approach to acquiring profits.

Important facts about Property Bonds

  • Fixed yields of between 7.5 and 10 percent per year
  • Investment terms from 3 to 5 years
  • Invest from as little as £10,000
  • Fixed Income options with interest paid every six months
  • Fixed term Capital Growth options with bonus paid at end of term
  • SIPP and SSAS pension investment approved
  • FCA regulated security trustee acting on behalf of investors
  • Fully Asset-Backed with first charge on assets registered with land registry
  • Full due diligence packs provided