Should you invest in care villages that pay YOU an income? Belong's social bonds promise a 7.5% return

Daily Mail​

2 days ago

Care village operator Belong has issued a second 'social bond', this time offering investors the chance to earn a 7.5 per cent income.
The charity runs eight communities for elderly residents, two thirds of whom have dementia, and has a new one under construction.
It plans to buy up its last bonds and use any surplus generated in the new bond issue for charitable activities, including building more villages.
Belong is giving holders of its older bonds, issued in 2018 with a 4.5 per cent return, the option of exchanging them for its new one, as well as seeking new investors.
Although 7.5 per cent-plus is a much better rate than you can get from a savings account, people should always tread with care when buying debt via bonds like this.
That is because the money you make back depends on the issuer - whether a charity or a business - being able to pay you back.
A retail bond or a mini-bond from a business, or a social bond like Belong's, is an investment only for those willing to take a risk and do their research on the issuer's financial strength - find out how below.
Individual investors can also buy bonds known as 'gilts' from the UK government - which has never defaulted - or spread their risk in a bond fund rather than lending to a single borrower.
Last month, the Treasury issued a new gilt paying investors 5.375 per cent interest until January 2056.
Belong's bond will be tradeable on the London London Stock Exchange's Orb market.
Bonds which can be traded on Orb allow investors to make money early if you sell when they trade higher than the offer price, but you can also lose if the price is lower. The Orb market offers an exit route for investors who want to get out.
This differentiates Belong's bond from 'mini-bonds', which must be held to maturity and have fallen out of favour after a series of scandals.
But all standalone bonds, including ones from charities like Belong which want money for a good cause, have always come with serious risk warnings, including from This is Money whenever we write about them.
- Unlike with a savings account, you are not protected by the UK's Financial Services Compensation Scheme, which guards against losses of up to £85,000.
- The varying interest rates on retail bonds and mini-bonds reflect the amount of risk attached to them - generally speaking, the higher the rate on offer, the higher the risk.
- You should beware of putting too much of your money into one or just a handful of bonds.
- It's worth considering a corporate bond fund, which will lend to large firms and spread your risk.
- Bonds held in an Isa can deliver tax-free income, but investors should investigate the potential tax liabilities on individual investments.
Scroll down to find a checklist on how to research the prospects of individual bonds.
What do you need to know about the new Belong bond
Belong runs villages with a mixture of accommodation, community and hospitality venues, which serve more than 1,000 people across north east England.
They include a children's nursery, and a village centre open to the public, plus a full range of care and nursing facilities to look after people until they die.
Belong says: 'The model is a positive evolution on traditional, clinical and institutional care settings, instead promoting wellbeing through homely, smaller group living arrangements, surrounded by amenities.'
Some 65 per cent of its customers are private self-funders, with the rest funded by local authorities and the NHS, and the occupancy rate is 96 per cent.
The charity says it has almost doubled revenues over the past five years to £51million.
The last bond issued in 2018 with a 4.5 per cent return raised £50million, and matures in 2026.
Its latest bond requires a minimum investment of £500, and purchases of at least £100 a time thereafter.
The issue price is 98 per cent, which means for the minimum investment of £500 you pay £490, and for each further £100 you pay £98 (not including broker fees).
This means that if you hold the bonds to maturity, and you get your capital back, the return on investment or 'yield' would be 7.99 per cent rather than the headline 7.5 per cent rate.
Holders of the previous bonds can sell them for £98 per £100, and buy the new ones at £98 per £100, allowing them to switch without investing any more cash.
The first interest payment - or coupon - is due in January 2026, and bi-annually after that.
The bond is expected to mature in July 2030, though the final legal maturity date is in July 2032.
The official purchase deadline is 30 June, and the new bond is expected to start trading on London's Orb market on or around 8 July.
If you are considering investing, you should read Belong's prospectus here.
What to check before buying social, retail and mini-bonds
* Any investor buying individual shares or bonds would be wise to learn the basics of reading a balance sheet. When looking at bonds, research all recent reports and accounts from the issuer thoroughly. You can find official stock market announcements including company results here.
* Check the cash flow is healthy and consistent. Also look at the interest cover - the ratio which shows how easily a firm will be able to meet interest repayments on its debt. This is calculated by dividing earnings before interest and taxes (known as EBIT) by what it spends on paying interest. Read our guide to doing investment sums like this here.
* It is very important to find out what the bond debt is secured against, and where you would stand in the queue of creditors if the issuer went bust. This should be included in the details of the bond offer but contact the issuer direct if it is unclear.
* Consider whether to spread your risk by buying a bond fund, rather than tying up your money with just one company or organisation.
* Inexperienced investors who are unsure about how retail or mini-bonds bonds work or their potential tax liabilities should seek independent financial advice.
* If the interest rate is what attracts you to the bond, weigh up whether it is truly worth the risk involved. Generally speaking, the higher the rate on offer, the higher the risk.
* If the issuer is a listed company, before you decide whether to buy it is worth checking the dividend yield on the shares to see how it compares with the return on the bond. Share prices, charts and dividend yields can be found here.