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ISA Ideas: Rare Retail Bond Issue Offers 5.375% Secured

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For those looking to top up their ISA or SIPP allowances before midnight on April 5th, there’s a new retail bond that might just be worth a look. LendInvest, a Peer2Peer lending platform for investment in UK property projects has announced a new retail bond. It pays an annual interest rate, or coupon, of 5.375% and matures in 2023.

With the best cash ISA rates 2.5%, and involving locking your cash up for a while, the promise of more than double that, and actually significantly beating inflation, sounds appealing. But as we all know, higher returns never come for free and the price paid is generally increased risk. So who exactly are LendInvest, what are they offering, how risky are retail bonds, and this particular one, and how would one go about investing in one?

P2P lending platforms match investors with individuals or companies looking to raise finance. In most cases the borrower has to put up some form of collateral to secure the loan. Investors are advised to split their investment between a portfolio of loans to spread the risk of default. The LendInvest platform specialises in P2P funding of property projects, with the loans secured against the land or existing property value. LendInvest is the UK’s biggest P2P lending platform and this is their second retail bond offering. The capital raised by this new issue is to be used for the company to issue buy-to-let and bridging loans secured against property assets.

What is a Retail Bond and How Risky Are They?
Retail bonds are an alternative investment product most commonly issued by medium sized companies. They can be traded on the London Stock Exchange’s Order Book for Retail Bonds. They are relatively rare and usually only a single digit number of new issues take place in a year. While they are not a fully regulated product and, therefore, do not come under the Financial Services Compensation Scheme, they do have to comply with stock exchange regulations.

If LendInvest was to go bankrupt, investors wouldn’t automatically be entitled to compensation, which is why the returns attached to the bonds are much higher than interest paid on a cash ISA. However, the bonds are secured against LendInvest’s assets, including the collateral against loans made by LendInvest that uses the capital raised by the bond issue. This means in the worst case scenario investors would almost certainly recover part of their investment. To date, there hasn’t been a case of default on a London-listed retail bond.

Where Can I Buy It
The bonds will be available through a good variety of UK online stockbrokers. Because the bonds are exchangelisted, they will also qualify for inclusion in both stocks and shares ISAs and SIPPs.

Risk Warning:

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Paul

The author Paul