The PSA offers a capped, target lender return for investors of 5.50% p.a. gross (before tax and any loan losses and protected by a discretionary Provision Fund).
Please note that you could receive less than this rate of return, and possibly a loss of capital, if the PSA's Provision Fund were exhausted and then loans were to default or borrowers were no longer able to repay their loans and the property security was found to not cover the outstanding loan capital, outstanding interests and other costs of recovery. We seek to mitigate this risk by cautious levels of lending against carefully assessed independent valuations.
The minimum investment into the PSA is £1 and there is no maximum, subject to loan availability.
Included in the PSA are business loans that are secured with legal charges over land or property. In addition, these loans may also benefit from security taken over machinery, invoices, company assets, debtor books, other realisable assets and/or a personal guarantee from the business owner, however any of this extra security will be ignored for purposes of the primary Loan to Value protection required from the land or property security described below.
The PSA will automatically diversify your account funds across many matching loans at any given time, with the aim of doing so in an equal and proportionate way, subject to loan availability. For example, if 50 suitable loans are available, the PSA will aim to invest approximately 2% of account funds into each loan. Likewise, with only five suitable loans, the PSA will aim to invest approximately a fifth (20%) of account funds into each loan should suitable numbers of loans be available.
Please note that in situations where the number of loans matching the account criteria is low, diversification is only possible across the matching loans – this may mean that the actual extent of the automatic diversification may be limited unless/until new loans become available. In such a scenario the percentage invested in any one loan may rise.
After your funds are invested in loan units the diversification system continues to adjust your holdings in order to spread your funds across as many loans as possible. This is achieved by swapping loan units with other investors in the PSA such that everyone’s investments are spread as widely as reasonably practical. In this way, as new loans are drawn down, lenders with available funds will invest in those loans, and then exchange loan units with all other lenders in the account so that everyone is able to spread their funds into that new loan, subject to the loans being tradeable at that time. This mechanism is subject to various threshold criteria to keep the exchanges of loan units to manageable levels. To fully benefit from this mechanism a lender would need to invest £500 or more in the PSA.
The maximum loan-to-value (LTV) ratio for individual loans eligible for automatic selection for this account depends upon the type of loan. The table below contains the current selection criteria:
|First Charge Business Loans
|First Charge Property Development Loans
|2nd Charge Business Loans
*Please see the Asset Security section below for an explanation of the asset security that we take and for more details on LTV/security.
These criteria are designed to allow for recovery costs of a defaulted loan and also the relative risk of each type of loan with the aim of ensuring that any defaulted loan in this account has a substantial expectation of recovering all of its capital after recovery costs.
What’s more, by investing in the PSA, your money helps to boost the UK economy by supporting the growth of carefully vetted British businesses, as well as earning a fair, risk-adjusted return.
Normally interest (income) is earned and paid monthly. However, due to the nature of a limited number of loans that may qualify for the PSA, the interest payable on the loan may only become due for payment at the same time as that loan is repaid. You will also receive capital repayments from time to time, based on loans' contracted repayment dates (their due dates for repayment). Interest and repayments can be automatically reinvested if you choose (see below).
All PSA investments will benefit from automatic inclusion in a separate, discretionary Provision Fund intended to help to protect investors from income delays or income and/or capital losses within the PSA. Any loan interest paid by borrowers that is above the 5.50% target rate for this account, minus any contractual fees due to Assetz Capital, will be used to fund the Provision Fund.
The Provision Fund seeks to protect against any potential capital losses if, in the event of a loan default, the security taken on that loan does not cover the outstanding balance owed although, as mentioned above, the design of this account is aimed at achieving no expected losses on individual loans at the time of the first loan drawdown by limiting the maximum loan to value of loans in the PSA.
The cash balance held in the Provision Fund for the PSA was £393,000 as at 31 March 2019. The Provision Fund provides the following coverage for expected losses in this account:
|INVESTMENT ACCOUNT||INVESTMENT ACCOUNT EXPECTED LOSS||PROVISION FUND COVERAGE|
|Property Secured Account||0.27%||6.80x|
For a loss to occur it would require property prices to fall more than they did in the last recession (the worst fall in 100 years). However, because the falls reported in 2009 were average figures it means that some properties fell by a larger value. There will always be cases where larger falls occur but they will be small in number. So while we expect no expected losses in the PSA we are also aware that it is a possibility, however remote that a small number of loans might cause a loss. This is why we have put in place a provision fund to prepare for the unexpected.
In order to provide additional protection to our clients’ investments, at Assetz Capital we always take realisable asset security on all our loans. This security takes the form of charges over property, equipment, or other assets professionally valued to be worth more than value of the loan. Within the loan details we will quote a Loan to Value (LTV) (or Loan to Gross Development Value (LTGDV) for construction/development loans) in order to provide investors with an indication of the loan value versus the eventual expected security value.
The value of security can vary across the lifetime of a loan. This may be through ordinary course of business during the natural course of a development / construction project or it could be where security is lost or harmed. Details of security taken are provided in each credit report and, wherever possible, any third party independent valuations are also provided.
In the case of a development loan / construction project we will provide details of the loan to value when the loan is initially drawn and the forecast end loan to value post completion of all work. The transition of value throughout a development is not, however, linear and will vary according to the development and is also reliant upon continued funding of the development each month. As such, the loan to value during the course of a development / construction project may exceed the maximum opening and closing values quoted. In the event of a loan failing to repay in full this security can be called upon to settle the outstanding balance of the loan, providing a far greater chance of a full recovery in contrast to lightly secured loans protected by just a personal guarantee, or completely unsecured loans.
This security and the above-mentioned Provision Fund is intended to help reduce the potential for investor losses.
It is quick, simple and straightforward to fund your PSA: you simply move money into and out of your account by bank transfer. When using 'faster payments' to deposit funds, this service should be almost instantaneous, but other transfers can take up to three working days. There is no minimum transfer amount for bank transfers. Moving funds between Assetz Capital Investment Accounts should be possible within seconds, while complete withdrawal of funds from our platform should happen within two working days.
Within your Loan Dashboard, you can choose to set your account to automatically re-invest interest income and capital repayments back into your PSA (if it is still open for new investments). Alternatively, you can transfer this cash into your Cash Account for investment in other loans or Assetz Capital Investment Accounts
Investors can exit loans early via our Aftermarket, subject to demand from other investors at that time. Via this Aftermarket and at your request, the PSA will aim to sell part or all of your investment at any time, subject to continued demand for these loans from other investors.
What's more, you have the ability to add to or reduce your investment in your PSA. After your initial purchase, if you would like to increase or decrease the amount invested, then you may do so, subject to availability and demand. When changing your investment level in your account, the PSA will aim to continue to automatically balance your loans, so as to maintain diversification.
Via your Loan Dashboard, all of your Assetz Capital investments can be tracked, monitored and managed through our comprehensive and market-leading portal.
In addition, you can invest directly in the underlying loans that the PSA invests in, subject to the availability of these loans in the Aftermarket, but without the protection of the Provision Fund. You can do this by using the Manual Lending Account (MLA) and directly selecting these individual investments. Without the protection of the Provision Fund, these manually selected loans may deliver higher or lower net returns after any losses than the PSA.
For more information on our default and loss performance data and more detail on our methods of analysis and risk management please see our Defaults and Losses statistics and explanation page.