Seven-year fix: Eye-catching 6.5 per cent retail bond set to launch for those looking to lock in for longer
An eye-catching 6.5 per cent is being offered to investors in a new retail bond to be listed on the London Stock Exchange’s Orb market.
Issued by specialist property development lender Urban Exposure, the bond – essentially a loan – promises to pay interest twice yearly to investors prepared to tie up their cash for seven years.
The company hopes to raise at least £75million via the bond which it plans to lend out to small scale property developers building predominantly first-time buyer homes in towns and cities outside London.
Bonds will be listed on the LSE’s Order of Retail Bonds market, meaning that they can be bought and sold second-hand by investors.
The bond promises to pay interest twice yearly to those ready to tie up cash for seven years
Chief executive Randeesh Sandhu says: ‘First-time buyers can save 40 to 60 per cent in monthly costs by buying rather than renting their homes so there is plenty of demand.’
The company has operated since 2002 and counts developers Strawberry Star and Galliard among its borrowers.
The high rate attached to the bond rings alarm bells for Justin Modray of adviser Candid Financial Advice. He says: ‘Investors should tread carefully as 6.5 per cent reflects it being a higher risk investment.’
The bonds are also open to institutional investors but companies often issue them to the general public to help raise their profile.
While Urban Exposure, which is guaranteeing the bonds itself, is well known to house developers few individual investors will know its name. This is its first retail bond.
Modray warns: ‘If Urban Exposure fails to pay you interest and or return your loan at maturity then tough, as bond investments like this are not covered by the Financial Services Compensation Scheme.’
He advises investors to only consider retail bonds of any kind if they thoroughly understand the business they are lending to. He says: ‘For everyday investors I think such bonds are a step too far.’
One advantage of Urban Exposure’s bond over some other types of bond is that once purchased it is expected bondholders will be able to trade them via a stockbroker. Modray says: ‘But there is no guarantee that there will be buyers.’
The minimum investment is £2,000 and the offer closes on 30 July unless fully subscribed sooner.