Bridging finance investment key risks

This is a high-risk investment and as with any investment the money you invest is at risk. Returns are not guaranteed and the issuance is subject to general risks of investment:

1. You could lose some or all of your money

• It is important to remember that you could be exposed to losses associated with the property market. This means that you could receive less or none of the money back that you originally invested.

2. There are limited protections if something goes wrong

• Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Read more on the FSCS investment protection checker here.
• Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, the FOS may be able to consider it. Learn more about FOS protection here.
• In the event that London House Exchange ran into difficulty, PricewaterhouseCoopers LLP  has been pre-engaged to manage the sale of the property portfolio which may result in losses - read more about our Investment Safeguards here.

3. Don’t put all your eggs in one basket

• Putting all your money into a single platform or type of investment is risky. Spreading your money across different investments and investment platforms makes you less dependent on any one to do well. In a similar vein, we also recommend that investors diversify their investment(s) across multiple properties on the platform. A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

4. You may not get your money back quickly

• Unless explicitly stated, liquidity or in other words the ability to sell and withdraw your money from any investment is not guaranteed and you need to be aware that you may need to hold your investment for longer than expected. 
• Returns in any investment are not guaranteed.

5. The value of your investment can be reduced

• Property investments are subject to broader macroeconomic conditions as well as specific risks. In many cases, your investment is linked to the underlying value of property and therefore the value of your investment can go down as well as up.  

Investment in our Bridging Finance Certificates are subject to specific key risks, which, for simplicity, we have split into three categories. Investors should read and understand the following before proceeding with investment:

Property focused

Property market and associated risks

Property values can go down as well as up and can be impacted by events, locally, nationally and internationally. While we will not exceed a finance-to-value (FTV) ratio of 75% including the customer’s finance cost obligations, any future property value reduction could; increase the finance-to-value ratio (FTV) and therefore increase the possible risk to a loss of capital in the event of a default and forced sale; the customer could find it difficult to refinance and therefore repay their finance obligations; the customer may struggle to sell the property and fully repay the their total finance obligations. 

Asset security risk

With every issuance the finance provider holds the first legal charge over the asset being financed and will act in the event of default to action the sale of the asset, with LHX investors being the sole beneficiary of recouped funds. As with any secured asset, there is always a risk of recovery, through the asset itself having lost significant value through structural failings for instance or another unforeseen issue arising, especially in the case of renovation or building work. In the case of property finance products there is also the risk of property fraud, although this remains rare, the underwriter conducts standard due diligence of the customer. 

Customer focused

Repayment risk

Repayment of investor capital and returns are predicated on the customer’s successful exit from the underlying property. There are therefore risks to consider, including, but not limited to the customer’s ability to refinance the property, their financial history which may have altered since the finance was first put in place, the property type and potential market for the property. 

Financial crime risk

As with all property finance there is a risk of financial crime/fraud committed by customers in an attempt to launder money or commit other crimes. All customers go through a full due diligence check, including KYC (know your client) and AML (anti-money laundering) checks, undertaken by the finance issuer/underwriter. 

Customer default

Every issuance is secured against a specific property. Thus, if a customer defaults on a their finance obligations, the outstanding capital and any costs owed is recovered by the forced sale of said property, however, this does not guarantee the repayment of the capital invested or the profit accrued, and the outstanding funds owed could exceed the net sale proceeds of the property. It should be noted that fees for a forced sale, including any legal fees, would be payable before investors are paid their capital and any profits due. If the customer fails to make payments, this could impact upon investment returns. As with all investments, despite the secured nature, capital remains at risk. 

General

Liquidity 

These investments 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 which may be extended beyond the initial anticipated term. Investors need to consider this lack of liquidity before deciding to invest.

LHX/Finance provider administration

In the unlikely event that London House Exchange was to enter administration, investors would not have direct access to the customer's assets to recover their money, rather PricewaterhouseCoopers LLP has been pre-engaged to manage the investments. If the finance provider were to go into administration, LHX would take control of the asset and handle the repayment of the investment. 

Delayed repayment - Repayment is anticipated to be within the number of months stated from date of issue. Repayment is predicated on either property sales or refinance and the speed at which these transactions take place is dependent upon the housing market and broader economic conditions. A significant economic shock, for instance, could have a material impact on the housing market and thus on repayment. Investors will continue to earn a share of the profit generated, amounting to the stated rate of return on a pro rata basis until repayment is made. 

Interest rate risk - Interest rates could increase or decrease significantly.  A significant rise in the cost of finance could present a refinance risk for customers and thus a risk to investors' capital and/or delayed repayment.