A fixed-term bond of this type raises capital from investors and lends it to experienced borrowers, typically within the UK residential property and development market. Investors receive a stated rate of interest over a defined term, either periodically or on maturity, with the loans secured against real assets.
The structural features that distinguish one offer from another are the ranking of security, the presence of an independent security trustee appointed to monitor and enforce that security on investors' behalf, the degree of diversification across borrowers and regions, and the discipline applied to loan-to-value.
Tax wrappers are often available. Carlton Bonds, for example, publishes routes to invest through an Innovative Finance ISA, a SIPP, a SSAS or directly. Wrapper eligibility affects how interest is taxed but does not change the underlying investment risk. Tax treatment depends on individual circumstances and may change.
The risks require equal prominence. Capital is at risk and returns are not guaranteed. These are fixed-term instruments and are not readily realisable, so an investor should expect to remain invested for the full term. An Innovative Finance ISA is not a cash ISA, and investments of this kind are not covered by the Financial Services Compensation Scheme.
[Current series, rates, terms, minimum investment and fees to be taken from the provider's current Information Memorandum. Figures change between series and must not be quoted from this article.]
Any decision should be made only after reading the provider's Information Memorandum and risk disclosures in full.