Retail investors are being offered an opportunity usually reserved for giant pension funds with a secured bond offered by start-up mortgage lender BlueZest.
The bond will have a yield of 5.25% at launch, run for five years and be listed on the London Stock Exchange’s retail bond market.
Robert Ainscow, BlueZest’s director of funding, says the bond is aimed at retail investors who want a part of their portfolio in a ‘safe, bedrock investment’.
“It’s not designed to be racy or sexy.”
It what would be a first for a company of this type says Ainscow, a trustee arrangement will see investors’ money secured on the properties that are mortgaged.
There is also an insurance agreement with 'A' rated insurer Amtrust, which will indemnify Bluezest for a decline of up to 40% in the value of a mortgaged property.
But it is the speed of the mortgage application process that is the unique feature, says Ainscow.
As long as all of the data on an applicant is available, an offer can be made in as little 30 minutes.
Advances in risk assessment and the multiple data sources now available are the reason, he adds.
Chief technology officer, John Robinson, designed a pioneering risk assessment platform when he worked for credit giant Experian and it is this know-how and experience that is at the heart of BlueZest's application process.
Its platform, the Zest engine, almost instantly assesses over 3,000 data points from up to 30 data sources, including multiple credit bureaus, property valuation models and the Land Registry for a credit decision.
BlueZest will focus initially on the professional and business mortgage market, though residential loans may eventually follow as the operation grows.
Buy-to-let, property developers and small to medium sized firms wanting a mortgage are the target with the emphasis again on reduced risk.
Developers, for example, have to put up a completed building as security, while SME directors must also use their own property as collateral.
The five year length of the mortgages are also in line with the length of the retail bond.
Making sure the loan book and finance sources remain matched is another key part of the strategy, says Ainscow.
The 2008 credit crunch had a mis-match of assets and liabilities as its heart, he says, and BlueZest’s structure has been designed to ensure that won't happen.
Money raised from the bond will go into a cash transaction account and be allocated thereafter.
Further and frequent bond issues will follow as the mortgage book and momentum builds. Another issue is pencilled in for late January.
BlueZest has not revealed how much it wants to raise from this initial bond launch, but the long term ambition is to have a £1.5bn mortgages book.
Bonds will be sold in £100 tranches with a minimum investment of £1,000.
Interest will be paid quarterly and because the bond is being listed on the London Stock Exchange, it will be allowable for inclusion in an ISA or SIPP.
The issue closes on 12 December.