This is a high-risk investment and as with any investment the money you invest is at risk. Returns, including interest payments, are not guaranteed and the bond issuance is subject to general risks of investment which you can read more about here.
Investment in LHX Mortgage Bonds is subject to specific key risks and investors should read and understand the following before proceeding with investment:
Future property value reduction - This would increase the loan-to-value ratio (LTV) and therefore increase the potential to lose the money you have invested.
Delayed repayment - Repayment is anticipated to be within 12 months from date of issue. Part repayments will take place following unit sales. Interest will be paid on partial capital repayments. However, repayment of the bond is predicated on unit sales. The speed at which these transactions take place is dependent upon the housing market and broader economic conditions. Multiple property sales may be required to repay the loan; the timing of these is not controllable and repayment may be delayed. A significant economic shock, for instance, could have a material impact on the housing market and thus on repayment. Bondholders will continue to earn interest until the loan is repaid whether partially or in full.
Liquidity - These bonds are illiquid and are not tradeable on any secondary market. This means that your investment will only be returned at the end of the term of the bond. Investors need to consider this lack of liquidity before deciding to invest.
Rental voids - Vacancies, reducing net rental income, could lead to future cash deficits which will need to be repaid and impact upon the financial position of the property.
Under subscription - Funds invested in Bonds that are undersubscribed, i.e where the fundraise does not completely repay the mortgage, are subject to greater risk of loss than those in which the mortgage has been repaid in full and where Bondholders’ investments are secured by way of First Legal Charge. For repayment, Bonds rank ahead of shares, but behind the mortgage - see Mortgage Lender Risk and Unsecured loan sections below.
Mortgage interest risk - Interest rates could increase or decrease significantly. Bond interest rates vary depending on the specific property. The existing mortgage rate is used as a reference to establish a fixed margin on top of the current BoE base rate. The Bond interest rate is variable and significant upward movement in interest rates could put pressure on the ability to pay interest to bondholders, whereas downward movement could impact upon overall returns.
Mortgage lender risk - The first charge mortgage lender will have the legal right to enforce the terms of their agreement, including the repossession of the property in the event of a default while the mortgage is outstanding. In the event that a mortgage is not repaid in full, the current lender could refuse an extension, meaning that an accelerated sale may be required leading to potential capital losses.
Unsecured loan - Until the mortgage is repaid, bonds are not legally secured against the property. Rather the mortgage lender retains the First Legal Charge over the property. Once the mortgage is repaid, the Bond is secured by way of First Legal Charge. While unsecured, the Bond would rank below the mortgage lender in the event of a forced sale or liquidation, placing risk on the investment. In a liquidation event, bondholders will receive funds before any return of capital to shareholders in the SPV.
Please read the terms and conditions before investing.