The Daily Telegraph

With a 5.25pc coupon and a five-year term, this new bond issue is worth a look

Lendinvest’s bond is not without its risks but niche lenders are better placed than mainstream rivals

- Richard Dyson

THE issuance of new bonds which are aimed at private investors and which will be traded on the London Stock Exchange is a rare occurrence: there has been one such issuance so far this year. That was a £50m fund-raising in March for care home operator Greensleev­es, paying 4.25pc and maturing in 2026. There are plenty of issues of non-quoted “bonds”, sometimes called “mini-bonds”, many of which are widely – and sometimes misleading­ly – advertised. These are effectivel­y IOUS from firms and are of varying quality. The general advice is to avoid. Quoted bonds, however, are more attractive as the borrower has to share more informatio­n with the market, and investors can reasonably hope to benefit from a higher level of scrutiny and liquidity. Most such issues are worth, at the very least, a look. A new issue is currently under way: Lendinvest, the niche lender that offers short-term finance to property investors, is seeking £50m from private investors as part of a larger, longer-term fund-raising. It is offering 5.25pc with a nearer maturity date of 2022.

Held inside an Isa, this income will be tax-free. Outside an Isa investors will pay tax, although the bond income is offsettabl­e against their personal savings allowance. The offered 5.25pc coupon and shorter term is attractive and reflects the comparativ­e risk of the propositio­n.

A wider risk is that the landscape for residentia­l property investors is changing dramatical­ly and rapidly. A curtailmen­t of income tax relief, an increase in stamp duty and less favourable capital gains tax are all playing a part in dampening buyers’ appetites. Mainstream buy-to-let lenders are retrenchin­g. The graph above shows the decline in lending triggered in April 2016 with the stamp duty increase.

Lender trade body UK Finance (formerly the Council of Mortgage Lenders) reckons this is the beginning of a bigger reversal: it now predicts a 17pc decline in gross buy-to-let lending between 2016 and 2018.

Lendinvest’s propositio­n is not mainstream. The duration of its loans average just 10 to 12 months and are charged at high rates of between 8pc and 12pc. They are secured on the properties, which are individual­ly and independen­tly valued. The average

ratio of loan to property value is 65pc. Safe? No. Lendinvest’s loan underwrite­rs have long histories of working with other lenders, but the business itself has been going only since 2008 – and the post-crisis period has been, until very recently at least, astonishin­gly favourable for property investment.

That said, the direction of drift for the sector is away from amateur, “armchair” type property investors and towards full-time, profession­al landlords. This is explicitly what successive government­s’ policies have sought, and we can expect more. Questor’s Income Portfolio has exposure to buy-to-let via two other holdings: shares in Onesavings, the niche bank, and quoted bonds issued by Paragon, the specialist landlord lender.

We bought Onesavings at 322p on Nov 11, largely for growth. It closed yesterday at 396p. Paragon we bought for its yield to maturity of 5.04pc. Both these lenders service a profession­al market and should be beneficiar­ies of the changes.

Lendinvest, too, should grow. It says 75pc of its borrowers are incorporat­ed, suggesting an already profession­al borrower base. Lending £50m to £60m per month as of now, the money raised should not be hard to deploy.

Questor’s Income Portfolio was set up in September 2016 with the aim of deploying £500,000 to obtain a sustainabl­e 5pc income. The final £20,000 (4pc) as yet uninvested will now be used to subscribe to these bonds.

Next Friday, as always on the first Friday of the month, a full list of holdings and their returns to date will appear here.

Update: Lloyds

Despite a 4pc rise in pre-tax profit in the first half of 2017 (to £2.5bn), shares in Lloyds were down 1.6pc following half-year results published yesterday. Profits had been forecast to come in £400m higher while the bank had to set aside an additional £1.5bn in “conduct charges” (for mis-selling).

But the interim dividend has been increased 18pc to 1p a share, and Questor believes Lloyds remains best placed of the high street banks to capitalise on an increasing­ly likely rise in interest rates. Hold.

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