LendInvest launches retail bond offering 11.5% - what are the risks? (2024)

Property finance specialist LendInvest has issued its fourth retail bond, and will offer investors the chance to earn 11.5 per cent income.

The firm, which calls itself a 'technology driven platform for mortgages', offers loans to landlords, developers and intermediaries in the UK.

LendInvest's rate is significantly more than you could get in a savings account, but retail bonds come with plenty of risk and savers should tread carefully when buying company debt via bonds like this.

The money you make back depends on the firm not going bust and, unlike with a savings account, the bond is not protected by the UK's Financial Services Compensation Scheme, which guards against losses of up to £85,000.

How to invest in LendInvest's new bond

A fixed rate bond raises funds from investors and has a fixed life. The issuing company, in this case Lendinvest, promises to pay a fixed rate of interest to the investor until the date the bond matures when it also promises to repay the amount borrowed.

The value of this bond, issued by LendInvest Secured Income II which is a wholly owned subsidiary of LendInvest, is £100, although you will need to buy a minimum of £1,000 during the offer period.

The bonds will mature in 2026 and will pay out an income of 11.5 per cent per year.

Interest will be paid in two instalments a year - on 3 April and 3 October every year. On the maturity date, LendInvest will repay the full value of the bonds, which are worth £100 each.

The official deadline to buy the bonds is 4pm on 27 September, but retail bond offers can often close early if they're popular and fundraising targets are met quickly.

The company can also, in certain circ*mstances, redeem, purchase or cancel the bonds early.

Unlike mini-bonds, which have to be held to maturity, LendInvest's retail bond will be tradeable on the London Stock Exchange's Orb market.

It means investors will be able to sell if the bond is trading higher than the offer price, but you can also lose out if the price is lower. It offers a possible exit route for investors who want to get out if there are buyers.

What are the risks?

If you choose to sell your bonds at any time prior to the bond's maturity date, you could receive less than the amount you originally paid for, depending on the market.

If interest rates continue to rise, then the income paid might be less attractive and price you get if you sell could fall.

Similarly, LendInvest warns that if you buy bonds on the secondary market, the overall return will be different from the headline yield on the bonds.

There is no guarantee of the market price and you might not be able to sell your bonds if the appetite isn't there.

Retail bonds and mini-bonds come with serious risk warnings - read ours at the bottom of this article.

Retail bonds differ to mini-bonds, which have to be held to maturity and have come under scrutiny in recent years following the collapse of London Capital & Finance.

Regulators have banned firms pushing mini-bonds to ordinary investors.

There are still risks attached to retail bonds, however. The varying interest rates reflect the risk attached to them and generally, the higher the rate on offer, the higher the risk.

As a result, you should beware of putting too much of your savings into one or just a handful of bonds. It is worth considering a corporate bond fund, which lend to large firms and are a good way to spread your risk.

Should retail investors get involved? We ask an expert

Jason Hollands, managing director of Bestinvest, said: 'While the very high interest on these bonds of 11.5 per cent may be tempting, do not get dazzled by the high rate of interest without thoroughly considering the risks and whether this is appropriate for you.

'The reason a borrower will be paying high rates to investors is because of the risks involved.

'LendInvest's business is making property loans and it should be born in mind that we are currently amid a very difficult period for the property sector with considerable uncertainty in the economic outlook.

'It is important to be aware when investing directly in any corporate bond issue, that while the interest rate may be fixed once the bonds are issued and trading on the markets the capital value of the bonds can fall as well as rise until maturity.

'If a lender runs into financial difficulties, there is the potential for a default on either the interest payments or the value of the bonds on maturity.

'Unlike investing in a savings account at a UK bank, direct bond investing is not covered by the Financial Services Compensation Scheme. The principle of caveat emptor – buyer beware – definitely applies.

'In my view direct bond investing should only be considered by experienced investors who understand the risks and are comfortable with the outlook for the borrower.'