A Simple Guide to our Secured Loan Note Investments

To ensure you have the information you need to make informed investment decisions, we’ve put together a guide on our secured loan note investments. To summarise the guide, there is an infographic at the end of the article.

What is the difference between property crowdfunding opportunities and secured loan notes?

Our property investment opportunities can be categorised into two subdivisions; equity and debt.

Equity investments generally involve purchasing a stake in the actual asset.

For example, buying a home is considered to be an equity investment, because your purchase is entitling you to the ownership of the asset. Often, equity investments are made in pursuit of income or capital gain.

• On our platform, investing in equity opportunities (otherwise referred to as our ‘property crowdfunding opportunities’) you become a landlord, with the opportunities to earn monthly income and share any capital growth.

• By investing £1,000 in a buy to let opportunity, you’re purchasing 100 shares in a company which owns a property (also known as the asset).

Debt investments generally involve lending money to or against the asset.

Investing in debt is like receiving an IOU. Generally speaking, you are lending money to a company which has agreed to pay you back your initial sum, plus interest. The agreement should outline the term length, the interest rate and the securities of the loan.

• On our platform, investing in debt opportunities (otherwise referred to as secured loans), allows you to lend to carefully vetted property developers, and alongside other mainstream lenders.

• By investing £1,000 in a secured loan note, your money is secured against property or cash for a specified term, with the repayment of a fixed interest rate due at the end of a fixed term or upon redemption.

• The investment raised from our loan note opportunities are either used to develop properties across the UK, or source property crowdfunding opportunities.

Key terms to consider

Secured and unsecured loans

With a secured loan, money is borrowed against an asset. A mortgage is a very simple example of this; if you cannot repay the money you have borrowed from the bank, the bank is legally allowed to repossess your home, because the money the bank lent you to purchase your home was “secured” against the asset (your home). If needs be, the bank can then sell the asset to repay the money you borrowed, but could not repay. The security acts as a safety net.

Unsecured loans can be high risk investments, because there is no safety net beneath the borrower’s inability to pay.

On our platform, all of our loans are legally secured against either cash or property, which means that, in the unlikely instance that a development opportunity fails to complete, the asset itself may be sold in order to pay back the lenders, depending on the specific terms of each deal.

First and second charge securities

Within secured loans, there are different variations of risk. A secured loan note which holds first legal charge holds the lowest risk in terms of repayment, because lenders are the first in line to receive their repayments. A secured loan note which holds a second legal charge may pose a higher level of risk, because the second charge lender will only receive their repayments after the first charge lender has received theirs.

On our platform, secured loan notes either hold first legal charge or, in the case of lending alongside mainstream high-street lenders, may hold second legal charge. This is always specified in the investment summary of each individual opportunity.

LTV (Loan to Value)

A loan note’s LTV can offer an indication of the level of risk involved. If, for example, a loan note holds an LTV of 95%, a property’s value would only need to fall by 5% for a lender’s capital (and fixed return) to be at risk. If, however, a loan note’s LTV was 60%, the property’s value would need to fall by 40% for a lender’s capital (and fixed return) to be at risk. As the likelihood of a property’s value falling by 40% is low, lower LTVs can indicate a lower level of risk.

 

By Jenna Kamal

Capital at risk