Octopus Choice A new choice for investors Choice... · A lender landlords love All loans on Octopus...
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Octopus Choice A new choice for investors Invest alongside us in loans backed by bricks and mortar June 2018
Transcript of Octopus Choice A new choice for investors Choice... · A lender landlords love All loans on Octopus...
Octopus Choice
A new choice for investors
Invest alongside us in loans backed by bricks and mortar
June 2018
Key investment risks
Octopus Choice is not a cash savings account: the value of an investment and any income from it, can fall or rise. You may not get back the full amount you put in.
Peer-to-peer investments are not protected by the Financial Services Compensation Scheme (FSCS).
Money invested through Octopus Choice is concentrated in loans backed by property and could be affected by market conditions. For the same reason, instant access to your invested capital cannot be guaranteed.
We do not offer investment or tax advice. We recommend investors seek professional advice before deciding to invest.
Commissioned by Octopus Co-Lend Limited, 33 Holborn, London EC1N 2HT, which is fully authorised and regulated by the Financial Conduct Authority (reference number 722801).
Issued by Octopus Investments, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London EC1N 2HT. Registered in England and Wales No. 03942880. We record telephone calls. All data correct as of 31 May 2018. Issued: June 2018.
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Find it fastStuck for choice? 4
An overview: potential benefits and risks 5
The oldest game in town? 6
A lender landlords love 8
Our money where our mouth is 11
Withdrawing your money 12
Understanding the risks 13
A strong performance record 14
A new choice of ISA... 15
Your investment journey 16
Staying on top of your investment 17
Octopus through and through 18
When Octopus started out in 2000, we believed financial services companies weren’t working hard enough for customers – and we wanted to do better. 18 years on, and that mission hasn't changed. We want to build products that put people back in control of their finances, and help to make their money work harder. Octopus Choice is designed to do exactly that.
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Many investors have found the last few years difficult. The stock market has often been turbulent, and returns regularly unstable – for some investments they may even have been non-existent. And prospects remain uncertain.
Investing in the stock market can be unpredictable and volatile. In today's challenging market conditions, it could seem downright unbearable.
Perhaps you're reluctant to invest any extra money as a result. Or maybe you've decided to steer clear altogether, and are looking to move your money into alternatives that may bring lower risk, but lower reward, too.
But what if there was another way? What if it was possible to hope for good returns, without investing in the stock market? That's where Octopus Choice could help.
Octopus Choice lets you target great interest by investing – alongside us – in loans backed by bricks and mortar. If you have money to invest, but nowhere to invest it, it could be the choice you’ve been waiting for.
Stuck for choice?
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Octopus Choice aims to help investors find a stable return, by investing their money in a portfolio of high-quality loans secured against property. Let's take a closer look.
Potential benefits
A great target rate of around 4%A variable rate of around 4% per year (gross of tax). Interest is paid monthly, and you can choose whether to have it automatically re-invested, or paid into your bank account.
Bricks and mortar securityAll of our loans are secured against real physical assets with a first legal charge – meaning they can be sold if the borrower defaults.
Our money where our mouth isWe invest with you, and would lose our money first. You’ll get your initial investment back before us; and you’ll earn all of your interest before we earn any.
Track recordAll loans are carefully selected by Octopus Property. They’ve lent over £3 billion since 2009 – and lost less than 0.1%. But remember, past performance is not a reliable indicator of future results.
Key risks
Your money is at riskOctopus Choice is not a cash savings account: your money is invested in loans to borrowers. We can’t guarantee investors will get all of their capital back, or earn all of their interest.
Octopus Choice isn't protected by the FSCSPeer-to-peer lending is not covered by the Financial Services Compensation Scheme (FSCS). Your capital and interest are at risk.
Instant access isn't guaranteedWithdrawing means selling your investments to other investors. We’ll try to give you access quickly, but we can’t make any guarantees.
You could be affected by a downturnAll loans made through Octopus Choice are currently secured against property – and so your investment could be affected by a material downturn in the property market.
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The Octopus Choice ISAInvestors can now look to target tax-free interest on Octopus Choice investments within their annual ISA allowance (£20,000 for the 2018/19 tax year), or by transferring in existing ISAs. That's thanks to the new Innovative Finance ISA, which brings interest earned on eligible 'peer-to-peer' (P2P) lending platforms in line for tax relief. See p.15 for more info.
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The oldest game in town?
Octopus Choice lets everyday investors do what established financial institutions have been doing for years.
Lending is one of the oldest asset classes around. The staple of the banking sector, it involves providing finance to those who need it, in return for regular interest payments.
But although it's about as traditional as it gets, it has typically tended to be the exclusive privilege of big institutions or wealthy family offices.
Octopus Choice aims to change that. We use so-called 'peer-to-peer' technology to gather together money from lots of different people and invest it – alongside our own money – in carefully selected loans. That way everyday investors can also access the attractive returns of lending.
So how does it work?• You choose an amount, and we'll invest it for you in a minimum of 10 carefully
selected loans. While we'll always aim to get your money working as quickly as we can, depending on demand this may take some time.
• We handle the hard stuff – entering into loan agreements with borrowers on your behalf, and building a portfolio of lots of different loans so you don't have to.
• The interest that each borrower pays combines to give you a personal rate, which is paid to you each month.
• This rate will vary over time as the loans in your portfolio change – and, of course, the actual interest you get will depend on whether all of the borrowers repay their loans as expected.
• There's no minimum or maximum length of time that you can invest for: you can ask to withdraw at any time. We'll then do our best to give you access to your money as quickly as possible (but we can't guarantee that this will happen instantly).
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Your capital is at risk. See page 13 for more on the risks.
What's peer-to-peer lending?Peer-to-peer lending refers to the practice of lending to individuals or businesses, in the hope of earning regular interest. The activity has been regulated by the Financial Conduct Authority (FCA) since April 2014.
The market is incredibly diverse, spanning both consumer lending (typically in the form of unsecured loans to individuals) and business lending (including secured and unsecured loans to businesses).
Though we use the mechanics of peer-to-peer, we think our product is made unique by...
• Our loans: all high-quality loans backed by bricks and mortar
• Our track record: harnessing the lending expertise of the Octopus Property lending team
• Our money where our mouth is: we invest alongside investors, and put our money at risk first.
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A lender landlords love
All loans on Octopus Choice are sourced by our award-winning lending team, Octopus Property.
Founded in 2009, Octopus Property has lent over £3 billion across more than 2,700 loans, and lost less than 0.1%. But remember, past performance isn't a reliable indicator of future results.
The loans that we make available for investment through Octopus Choice have a few things in common:
They're all securedAll loans are secured against bricks and mortar with a first charge. Loans are predominantly residential – mostly in the South East, but also throughout the UK – but the Octopus Property team is begining to make a growing number of commercial loans through Octopus Choice, too.
We think this 'secured' lending is less risky than other types of 'unsecured' lending – because if a borrower defaults on their loan, the asset can be sold and used to fund the debt. This also differs from many equity investments, where the value of your investment rises or falls immediately in line with the value of your shares.
They're all conservativeOur maximum ‘loan to value’ (LTV) ratio is 76%. This means that, if a borrower were to fail to repay their loan, the property we’ve taken as security would have to fall in value by 24% before any of an investor’s capital would be lost. As at May 2018, the average LTV is 60.6%.
They’re typically short termThe average loan term as at May 2018 is 40 months. While some loans do carry a term of up to 25 years, they have an initial grace period (of two to five years) at a lower rate, before shifting onto a much higher interest rate for the remainder of the term. This tends to lead to a refinance.
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Who are the borrowers?Your money will typically be lent to property professionals in need of short-term loans.
They're creditworthy borrowers who come to us because they need a level of speed, flexibility and certainty that traditional lenders often can't provide.
They may use the money for a variety of reasons, for example:
• To add to or even start building a buy-to-let portfolio
• To diversify their funding away from one bank
• To renovate a property, after which they’ll subsequently sell or refinance
Octopus Property will only ever make a loan if it's confident that it can get the money back.
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Past performance is not a reliable indicator of future results.
Since its launch in 2009, Octopus Property has lent over £3 billion and lost less than 0.1%. They've won plenty of awards, too.
What happens if something goes wrong?If a borrower becomes unable to repay the interest on their loan, we'll sacrifice all of the interest that we've earned on it so that we can pay as much of yours as possible. The borrower's monthly repayments also includes a management fee which we'd sacrifice from that point on, until you receive all of the interest that you're owed.
If necessary, we will repossess and sell the property on your behalf. After paying legal fees, we would then use all of the proceeds to pay back as much of the debt as possible. However, it's important to note that you won't be able to access the money that's tied up in that particular loan until the process has finished – and that could take considerable time. Remember, too, that there's no guarentee you'll get all of your money back.
Our money where our mouth is
We're so confident in the quality of our loans that we'll invest alongside you in each and every one. And put our money at risk first.
We’re not just a middle man, matching lenders and borrowers. For a start, we pre-fund every loan that we make available for investment, before selling them on, in parts, to new investors.
But we also go one stage further. We invest our own money in each and every loan – which we put at risk before yours.
It demonstrates just how confident we are in the quality of the loans. And it also gives you a layer of protection should anything go wrong.
How does it work?• We'll contribute 5% towards every loan.
• In each loan, you will get your initial investment back before we get ours.
• You'll also earn all your interest before we earn any.
£250k headroom
£37.5k from us
£712.5k from
investors
£750k loan
Example: for a £750k loan secured against a £1m house, the property would have to fall below £712.5k in value (28.75%) before any capital would be lost (leaving aside legal costs).
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Withdrawing your money
Octopus Choice has no fixed term. You can ask to withdraw at any time with no charge or penalty.
Because giving you access to your money means selling your investment to new investors, we can't guarantee that you'll get it instantly. But we'll always give you as much as we can, as quickly as we can.
So far more than £41 million has been successfully withdrawn. But remember, past performance isn't a reliable indicator of future results.
Provided there are people to buy them, we'd hope to give you your money within a matter of days. If we can, we’ll even buy your loan investments off you, just to speed things up.
There's no charge for investing in Octopus Choice. So how do we make our money?
We don’t charge any up-front fees or ongoing charges for investing in Octopus Choice. Aside from any fees you agree to pay your financial adviser, the sum you invest is exactly the sum that will be invested into loans.
We source all of the loans ourselves. So, instead, we charge borrowers – not investors – a monthly management fee of up to 0.35%. We might also earn extra fees if they repay the loan early, or if they choose to extend it.
But we'd only ever earn these fees once you've been paid all of your interest. If a borrower were to stop paying interest, we'd use them to pay interest to you.
We also earn interest on our own loan investments. Because we invest at higher risk than typical investors (remember, our money would be lost first, and we only earn interest once you've earned all of yours), the return that we receive is also higher: it could reach up to 30%, depending on the nature of the loan.
However, we can’t buy or sell parts of loans that the borrower has defaulted on – you would have to wait until the matter has been resolved. This could involve taking possession of the property and selling it, and could take considerable time.
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Understanding the risks
As with any investment, Octopus Choice does have certain risks, which are important to understand and be comfortable with. These include...
Your money is at riskOctopus Choice is not a cash savings account; your money will be invested in secured, asset-backed loans.
The ability to get all of your initial investment back or earn all of your interest is determined by the ability or willingness of the borrower to repay (which could be affected by fraud) and the underlying value of the asset (which could be affected by a material downturn in the property market).
As such, we can’t guarantee that you will get all of your capital back, or earn all of your interest.
Your investment is not FSCS protectedIt is important to know that P2P investments are not covered by the Financial Services Compensation Scheme (FSCS). Your capital and interest are at risk.
We can’t guarantee instant access Though we’ll do our best to give you access to your money as quickly as possible, we can’t guarantee instant access.
This is because your money is invested in loans. Our ability to give you access before they've been fully repaid relies on other investors purchasing your investment in each loan.
If we can, we'll always try to buy your investments to speed up your withdrawal – but we can't guarantee this.
There may be new tax rules in the futureThe tax benefits for ISAs are available at the moment, but HMRC may change them at some point in the future, or the interpretation of the rules may change. The value of some benefits may also depend on personal circumstances.
Your investment could be affected by market conditionsMoney invested through Octopus Choice is currently concentrated in a single asset class – namely, loans secured against property, predominantly in the South East of England.
Though in time we might move into other similarly secured asset classes, until then, the value of the security underlying each loan will be determined by movements in the residential property market.
There are potential conflicts of interestWe do make similar types of secured loans available for investment by other customers, through different products.
And we also lend alongside our customers, and earn a higher rate of interest on our loan investments. Our allocations committee aims to ensure that all potential conflicts are appropriately managed.
In the event of our insolvency, you could lose your ISA status In the unlikely event that Octopus Co-Lend falls into insolvency, the management of the product would be transferred to a third party that isn't an authorised ISA manager. While your loan agreements will remain enforceable, any money in your Octopus Choice ISA account will lose its ISA status, and subsequent interest earned will not be tax-free.
Before choosing to invest, please make sure you have read and fully understand the Octopus Choice terms and conditions. These can be found on the website at www.octopuschoice.com/terms
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Past performance is not a reliable indicator of future results.
A strong performance record
Investment performance to date
Year to 31 January 2018 2017
Amount invested £101.22m £36.19m
Total interest earned by investors £3.03m £445k
Average interest rate 4.2% 5.24%
Amount withdrawn £22.24m £4.22m
Since Octopus Choice was launched in 2016, the product has delivered solid returns to thousands of investors. Let's take a closer look.
Loanbook performance to date
Year to 31 January 2018 2017
Average proportion of live loanbook that is late-paying at the end of each month* 0.98% 0%
Number of loans passed to debt collection 1 0
Amount of interest lost £0 £0
Amount of capital lost £0 £0
£154massets under management
£5.3minterest earned to date
£41.3msuccessfully withdrawn
374loans funded
* Methodology: at the end of each month we count the number of loans that are late-paying (where the borrower has missed two successive interest payments, or failed to repay at the end of the term), and calculate them as a percentage of all open loans. The figures here show the average of each year's monthly percentages.
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Important information
• The Octopus Choice ISA is not a flexible ISA. Withdrawals will be treated in exactly the same way as with regular accounts, but they will still count towards your ISA allowance. For example, if you invest your full 2018/19 ISA allowance (£20,000), then later choose to withdraw the same amount, you won't be able to add any additional funds to your account for the remainder of the tax year.
• In the unlikely event that Octopus Co-Lend falls into insolvency, the management of the product would be transferred to a third party that isn't an authorised ISA manager. While your loan agreements will remain enforceable, any money in your Octopus Choice ISA account will lose its ISA status, and subsequent interest earned will not be tax-free.
*Source: Intelligent Partnership, ‘Peer-to-peer lending report’ (February 2017)
A new choice of ISA...
Investors can now include Octopus Choice investments within their ISA allowance.
In April 2016, a new flavour of ISA entered the market: the Innovative Finance ISA (IFISA). The IFISA allows interest earned through eligible peer-to-peer lending products to be included within the tax-free wrapper. It was launched on the back of dramatic growth in the sector – which saw over £3 billion of transactions in 2016 alone.*
Investors are allowed to open only one IFISA each tax year – but can use as much of their overall £20,000 (2018/19 tax year) allowance as they wish (provided the total invested across ISAs doesn't exceed the maximum in a given year.)
There is no difference in underlying investments between a regular Octopus Choice account and an Octopus Choice ISA – the same loans and underwriting criteria power both. The ISA is simply a tax wrapper that allows investors to shield a portion of their investment from tax.
Investors can fund their ISA in a number of ways: either by bank transfer or cheque – or even by transferring money across from an existing Octopus Choice account.
It's worth noting, though, that transferring money to an ISA account will involve selling down the existing portfolio of loans and buying a new portfolio for the same amount, which may change the rate that you earn, and the number of loans in your portfolio.
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Setting up your initial investmentGetting startedAfter you’ve talked through your options with your financial adviser, and agreed that Octopus Choice is suitable, they will be able to help set up your initial investment.
Setting you up onlineIf you have an email address and online access, your adviser will be prompted to set up your application over the internet. You will be sent an email outlining the investment – including any charges you have agreed with your adviser – and asking you to agree the terms and fund your account.
You will also be invited to create an account so that you can keep up to date with your portfolio and the interest you earn at the click of a button.
Not online? Not a problemDon't worry if you don’t have an email address. You can still set up an investment with Octopus Choice by completing and returning a paper application form – just speak to your financial adviser.
Funding your accountThe quickest and simplest way to fund your account is by bank transfer; when setting up your account you will be given a unique reference and our necessary bank details to complete the process. Alternatively, you can fund your account by cheque; but please note we allow 7 working days for cheques to clear.
Setting up a new ISAOnce you've set-up your initial Octopus Choice account, your adviser will be able to use the same process above to help you set up a new ISA investment.
Transferring an existing ISAAs well as investing your annual ISA allowance in an Octopus Choice ISA, you can also transfer some or all of any existing ISAs that you hold – whether cash or stocks and shares. Here's how.
Complete a form onlineYour adviser will help you fill out the necessary details of your ISA transfer online – including the amount you would like to move, and the provider with which it's currently invested.
Send to your existing ISA providerOnce signed and completed, your adviser can send the form to your existing ISA provider, so that they can process the ISA transfer.
We'll take it from thereWithin a couple of weeks, your provider should have transferred the selected amount across to us. When we receive the funds we'll begin to process the investment for you.
Your investment journey
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Staying on top of your investment
Managing your interest optionsInterest earned through Octopus Choice is paid monthly. You can choose whether to have it automatically re-invested (so that you can benefit from 'compound interest') or paid out directly to your bank account.
Please note that, as with all withdrawals, interest will need to be paid into the same back account as the one used to fund the initial investment (or else another in your own name).
Viewing your portfolioYou can log in to your account any time to see a full view of your portfolio – including your current interest rate, all interest earned, and details on each loan's loan-to-value, size and individual interest rate.
It's here that you will also be kept up to date with any loans that are late-paying or have been passed into collection.
Investing regularlyTo grow your investment more quickly, you can choose to automatically top up your investment each month.
Giving us feedback
Outstanding customer service is at the heart of everything we do. But that doesn’t mean we get it right every time – especially as we look to develop innovative products like Octopus Choice. If you’re not happy with the service we give you, please tell us, and we'll try an do better.
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Octopus through and through
We're part of the Octopus Group. Octopus seeks to improve the lives of millions of people by transforming the industries we operate in.
At Octopus, we want to change the world of finance for the better, with easy-to-use products and services that help people to manage their money.
Our products don't just aim to help real people solve real financial problems. They also aim to make a positive impact on the world around us.
Today Octopus has more than 800 employees, and comprises Octopus Investments, Octopus Property, Octopus Energy, Octopus Ventures, Octopus Healthcare and Octopus Labs.
Making a difference
We want what we do to matter, and for the businesses we build to make a big difference to people’s lives. That's why, for example, we invest in:
• UK smaller companies that create thousands of jobs and generate economic growth. Over the last four years, smaller companies backed by Octopus Ventures have grown their turnover tenfold, from £20 million to £200 million; and we currently have more than £1 billion invested in companies listed on the Alternative Investment Market (AIM).
• Companies that address the needs of older people, by building GP surgeries, retirement villages, care homes and hospitals. Octopus Healthcare’s managed GP surgery investment fund currently invests in facilities which care for more than one million people.
• Renewable energy facilities that are changing the shape of the UK energy market. Through our investments we generate enough renewable energy to power a city the size of Manchester. Within a decade, we aim to be generating enough to power five million homes.
Talk to us to find out moreWe can’t give you financial or tax advice, but we can answer any questions you have about us, or about this service. So, if you have any questions after reading this brochure, please give us a call on 0800 294 6848 or visit octopuschoice.com.
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Octopus Headquarters at 33 Holborn
