The fact that property bonds are asset-backed, and typically secured by way of a first or second charge over the underlying asset, means there is an element of downside protection for investors.
However, property bonds are an investment product, and as with all investments, your capital is at risk and returns are not guaranteed.
The returns on offer should always be considered target returns. Property bonds are not covered by the Financial Services Compensation Scheme (FSCS).
As an experienced investor it's always prudent to consider potential downside risk. For example, in the event of a significant economic downturn, it's possible that the underlying borrower may be unable to sell properties as anticipated and this could affect the borrower's ability to meet interest and capital repayments.
The primary risk associated with property bonds is the event of a borrower defaulting on their loans.
Property bonds that are secured with a legal charge can have an additional layer of safety, and property bond providers should have processes in place to minimise the risk of borrower defaults.
Property bonds are investment products, and they are not protected by the FSCS. When investing into a property bond, your capital is at risk and returns are not guaranteed.
With typical returns of anywhere between 4% and 8% per annum (tax free through an IFISA), property bonds can offer experienced investors the opportunity to generate higher returns than the more traditional mainstream Cash ISAs and Stock and Shares ISAs.
If you're considering investing in property bonds, it's essential you carry out suitable due diligence to understand how your money will be used to generate the target returns on offer. Check out the team, their track record and their experience. Review all offer documents carefully to ensure you have a clear understanding of the risk/return profile of the property bond you're considering.
CARLTON Bonds are an IFISA provider specialising in fixed term property bonds.
Against a backdrop of low interest rates and a volatile stock market, the IFISA can provide an attractive investment opportunity for experienced investors.
The property-backed IFISA has the potential to generate higher rates of return than more traditional investment routes for investors with a greater appetite for risk.
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