Press release | 5 December 2017
Downing Crowd launches fixed term property Bonds offering up to 6% p.a. interest
- Funding Circle investment professionals appointed to expand residential property expertise
- Downing’s track record lending over £250 million in UK development projects since 2010
- Interest available tax free in the Downing Innovative Finance ISA*
Investment platform Downing Crowd has launched its first property development bond. The DDF Property Bond aims to help address the lack of financing for small and medium-sized enterprise (SME) property developers, while offering investors a fixed term, fixed returns and a degree of diversification across a range of property developments.
As part of the new Bond launch, Downing has brought together a team of specialist property investors, including private equity professionals from peer-to-peer (P2P) platform Funding Circle, to help develop Downing’s expertise in residential property. Hannah Kenny and Parik Chandra previously worked together in the Real Estate Finance Division for Funding Circle, Parik Chandra as Director and Hannah Kenny as a Real Estate Support Specialist. Downing will apply its own due diligence process to carefully select a number of loans from Funding Circle’s own closed property loan book, which will be included in the Downing Development Finance (DDF) portfolio.
The proceeds of the new Bond will be used to fund a range of residential property developments and support small business owners who want to develop their premises, such as pubs and care homes. The Bond is designed to offer some diversification within the property sector and appeal to investors who prefer property investment professionals to pick, price and project manage the loans on their behalf.
The new Bond will offer a choice of two fixed rates, either paying 5% p.a. for those investors who hold the Bond for one year, or 6% p.a. for two years. The annual fees that Downing LLP charges will be capped at 2.0% p.a. This aims to keep the cost of finance down for the borrower, and maximise the potential returns for investors. Moreover, Downing’s fees are contingent on investors getting their capital and interest back.
A summary of the loan book will be published online and importantly show the rate of interest that the borrower is paying, to give investors a clear picture of where their money is going, and help them assess the level of risk.
Commenting on the launch of the new Bond, Downing Partner and Head of Crowdfunding Julia Groves, said:
“We believe the new DDF Property Bond can offer investors something really unique in the popular world of property investing. Unlike some other platforms that offer this type of property lending, we offer fixed rather than target rates, so investors know what returns to expect. The fixed term of the Bond also means investors know when they should get their capital back.’
“We believe we are launching the new Bond at an interesting time in the broader property market - with increasing restrictions on buy-to-let, some property investors are looking elsewhere for the competitive, risk-adjusted returns offered by the DDF Property Bond. The Bond can also help address the lack of financing for small-to-medium sized property developers, which is a contributing factor to the ongoing housing shortage in the UK.”
Over half (54%) of small to medium-sized (SME) housebuilders say a lack of financial support is the second biggest barrier to building new homes1 - a contributing factor in the UK housing supply crisis2. Small developers were estimated to be responsible for around 15,000-20,000 new build completions in 2015/16, even fewer than the outputs during the 2008-09 recession.3
Parik Chandra, Investment Director, adds:
“We are focussed on helping developers who have good track records, know their areas, and the type of product that sells. Crucially, we are not volume driven and favour quality over quantity when we make lending decisions. We hold direct relationships with a number of developers who we have worked with and funded on multiple schemes, and operate with a close network of intermediaries who have consistently provided us with quality deal flow.”
Our approach to managing risk
To help increase transparency for investors, Downing has a clear approach for selecting each loan which will aim to reduce risk wherever possible:
Secured lending - DDF takes first charge against the land and charge over the other assets of the property company. This aims to ensure that investors in the Bond are paid first if the borrower defaults.
First loss - Downing Development Finance will hold an initial £3 million of equity which will take first loss should any loans default. For as long as DDF is issuing new loans, it will maintain equity and reserves of at least 3% of the gross loan book value. Any profits generated by DDF will also be retained to support the value of this buffer.
Loan-to-value - Across the portfolio, the loan to value ratio will be capped at 70%, and no single loan will exceed 75% LTV to help reduce the likelihood that investors won’t get paid should the borrower default. Independent valuations of assets will always be carried out by an experienced third-party.
Borrower criteria - All properties will already have planning permission and we will appoint a monitoring surveyor on all major projects to audit the plans before lending, and take responsibility for overseeing the construction.
Tax free interest rates
Investors also have the opportunity to earn higher net returns by receiving interest tax free on the DDF Property Bond, through the Downing Innovative Finance ISA wrapper*.
Julia Groves continues: “Finding new and diversified investment opportunities to enhance the tax efficiency of your investment portfolio has become more of a challenge following the recent changes to pension legislation. As a result, high earners should make sure they maximise the tax wrappers available to them. The typical 0.5% return on cash savings arguably isn’t the best use of your ISA wrapper when there is the option to pay tax on your savings, and protect the 5% or 6% returns from property lending instead.”
Downing Crowd is part of Downing LLP, an FCA authorised and regulated investment manager with over 25 years of experience, 35,000 investors and in excess of £950 million of funds under management. Downing managed funds has supported UK development projects since 2010 totalling more than £250 million.
The Downing Crowd platform was launched in March 2016. As at December 2017, the platform has raised over £40 million on behalf of small UK businesses, having successfully launched 20 Bonds and repaid more than £16 million capital to date.
Capital is at risk
Bonds are investments, not deposits, and your capital is at risk. Downing will seek to minimise risks but investors should be aware that the returns are not guaranteed and you may not get back the full amount invested.
The Financial Services Compensation Scheme (FSCS)
The Financial Services Compensation Scheme (FSCS) deposit protection scheme does not apply to the Downing Crowd Bonds.
You are recommended to spread your funds across a number of investments to diversify risk and not to put too much of your capital in one Bond.
Non Readily Realisable
While the Bonds are transferable to other members of the Downing Crowd, there is no formal secondary market in place and you should assume you will need to hold it for the full term.
This article is for information purposes, should not be regarded as investment or taxation advice and no reliance should be placed upon it. Any personal opinions expressed are subject to change and should not be interpreted as advice or a recommendation. Past performance is not a reliable indicator of future performance. Downing does not offer investment or tax advice or make recommendations regarding investments. Downing is authorised and regulated by the Financial Conduct Authority (Firm Registration No. 545025). Registered in England No. OC341575. Registered Office: St Magnus House, 3 Lower Thames Street, London EC3R 6HD.