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A comprehensive guide to the key terms and concepts used in property-backed bond investing.
A fixed-income investment in which an investor loans money to an entity (such as a company or project) for a defined period at a fixed interest rate. In the context of Smart Legals, bonds are backed by UK property assets and offer predetermined returns over the term of the investment.
The interest payment made to a bondholder, typically expressed as an annual percentage of the bond's face value. Coupons can be paid periodically (e.g., quarterly) or accumulated and paid at maturity, depending on the bond terms.
The failure of a borrower to meet their legal obligations under a bond agreement, such as missing an interest payment or failing to repay the principal at maturity. In the event of default, the security trustee may act to recover funds on behalf of bondholders.
An investment strategy that involves spreading capital across different types of investments, sectors, or assets to reduce overall risk. Rather than investing all funds in a single bond or asset, diversification aims to minimise the impact of any one investment performing poorly.
A UK statutory scheme that compensates customers of authorised financial services firms if the firm becomes insolvent. It is important to note that investments made through Smart Legals are not covered by the FSCS, meaning investors bear the risk of potential capital loss.
An investment with a predetermined duration, or term, during which the capital is committed. At the end of the fixed term (maturity), the investor receives their original capital back along with any accrued or remaining interest. Early withdrawal is typically not permitted.
A type of Individual Savings Account that allows investors to hold peer-to-peer lending and certain debt-based securities within a tax-efficient ISA wrapper. Interest earned within an IFISA is free from UK income tax and capital gains tax, subject to annual ISA subscription limits.
The percentage of the principal amount charged or paid for the use of money over a specified period. For bonds, the interest rate (also called the coupon rate) determines the income an investor will receive. Smart Legals bonds offer fixed interest rates, meaning the rate is set at the outset and does not change.
A tax-advantaged savings or investment account available to UK residents. There are several types, including Cash ISAs, Stocks & Shares ISAs, and Innovative Finance ISAs (IFISAs). Each has an annual subscription limit set by the government.
A form of security registered against a property at the Land Registry. It gives the lender (or security trustee on behalf of bondholders) the right to repossess and sell the property if the borrower fails to meet their obligations. A first legal charge takes priority over other claims on the property.
The date on which a bond's term ends and the principal (original investment amount) is due to be returned to the investor. At maturity, any remaining interest payments are also settled. For example, a 4-year bond matures four years from its issue date.
A method of lending money to individuals or businesses through online platforms that match lenders directly with borrowers, cutting out traditional financial intermediaries like banks. P2P lending investments can be held within an IFISA for tax efficiency.
The collection of all investments held by an individual or institution. A well-diversified portfolio typically includes a mix of different asset classes and investment types to manage risk and optimise returns.
The original sum of money invested or lent, on which interest is calculated. When a bond matures, the principal is returned to the investor along with any outstanding interest. Also referred to as the face value or par value of the bond.
An independent, regulated entity appointed to hold and manage security (such as legal charges on property) on behalf of bondholders. The security trustee acts in the interests of investors, ensuring that security is properly maintained and, in the event of default, taking steps to recover funds through the sale of secured assets.
A type of personal pension that gives the holder greater control over their investment choices. SIPPs allow a wider range of investments than standard personal pensions, and contributions benefit from tax relief. Certain qualifying bonds may be held within a SIPP.
An occupational pension scheme typically set up by company directors and senior employees. An SSAS provides flexibility in investment choices and can be used to invest in a range of assets including commercial property and certain bonds. It is managed by its member trustees.
The length of time from a bond's issue date to its maturity date. During this period, the investor's capital is committed and cannot typically be withdrawn. Smart Legals bonds offer terms of 2 years and 4 years, with returns varying according to the length of the term.
The income return on an investment, expressed as a percentage of the investment's cost or current market value. For fixed-term bonds, the yield is typically equivalent to the stated interest rate, as the bonds are held to maturity. Yield provides a useful measure for comparing the income-generating potential of different investments.
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