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Debt investment

The Growing Popularity of Debt Investment

We recently released our latest Ultimate Guide | Debt Investment that goes into depth about debt investments, understanding investor behaviour in the market and the appeal of this alternative investment.

The market is showing little sign of slowing, and we are seeing increasing ways to invest in the property market. Each year we see increased investment in the alternative property investment market, with recent reports estimating we could see global value of investment in alternative asset classes reach $14 trillion.

To understand this why investors are turning to alternative investments, we have to understand investor behaviours in the market.

A shift in investor behaviour 

Investors are beginning to turn their back on low risk, low yield investment property and are instead exploring new, potentially more profitable ways to invest in bricks and mortar.

This is not to say that traditional property investments are being pushed to one side. The trend in the UK appears to be that investors are looking to diversify their investment portfolios as opposed to picking one over the other.  In return, they have the security of traditional property investments offering a long-term passive income, but also higher yielding medium term investments in alternative asset classes such as debt investment.

The rise of debt investment

The rising popularity of debt investment is one such area investors are turning their attention to. Debt investment, in simple terms, involves private investors loaning their own capital to a borrower, commonly a company. In return, the investor receives their fixed payment back after a pre-defined period of time, with interest.

The trigger for alternative investments was largely due to the resulting effects of the 2008 global financial crisis. After the crash, traditional lenders tightened lending, embracing a more stringent approach to borrowing. There was a resulting gap to fill, and alternative investment assets have gone on to flourish.

Here at FJP Investment, seeing first-hand the growing demand for a variety of debt investments, we looked to delve into the drivers for this growth and look to forecast investor spending going forward. To achieve this, we recently commissioned an independent study asking nearly 1,000 UK verified investors what their sentiments were towards debt investment.

A growing trend

We have seen debt investment slowly entering investors’ portfolios in recent times, with one in eleven investors surveyed stating they currently hold a debt investment. Considering the length of the investment is over a shorter period than a traditional property investment, this is a strong result for debt investment.

This is supported by the fact that one in five investors are considering making a debt investment over the next 12 months. With 34% of those aged under 35 considering making an investment, it is quite evidently an investment type that is growing in popularity, particularly with younger investors.

Having established that we are seeing a rise in debt investment, the real question that emerges is why, specifically, are investors turning to debt investment?

The attraction to debt investment

The biggest reason stated for the attraction of debt investment was the regular, fixed returns that investors can received. With a pre-defined fixed date for returns on investment, 30% of respondents were attracted due to the regular returns.

This figure holds some weight considering the current political uncertainty stifling the UK economy. Investors are looking further than traditional investments for greater returns. With interest rates staying below 1% for the last decade or so, it is hardly surprising that we are seeing a fall in money being held in savings accounts and Government bonds.

In fact, more than a third of investors (36%) stated that debt investment was attracting them because of the low level of interest rates. With this unlikely to change in the near future, investors are always on the lookout for opportunities that both offer ease of earning through simple investments, and also investments that offer healthy, reliable returns.

The ease of making the investment, touched on previously, is another major reason for the investment’s popularity. With many investors diversifying their investment portfolios, the ease of the transaction and the clearly defined fixed date of the end of the investment makes planning the investment in conjunction with other, more time-consuming investments such as buy-to-let, highly attractive.

Looking to the future

With continued uncertainty over whether we will actually leave the EU come the end of October, clarity is something that many investors are prioritising. The short-term nature of the investment is just what people need through the politic turmoil.

It is impossible to predict the fluctuations in currency going forward, though it is safe to say that, for overseas investors in particular, now is an amazing time to invest in UK based assets, debt investment included. The benefits can be obtained in the short to medium term, showing the value of an investment of this kind.

Almost half of investors (44%) surveyed said that the uncertain political situation is drawing them towards debt investment. We are not by any means close to having a stable political situation and economy, so there is unlikely to be any slowdown in the number of investors drawn to this investment type.

We have seen in recent years buy-to-let landlords being targeted by the Government in a bid to improve votes. Often seen as an easy target, the erratic changes in the political climate, coupled with the turbulent economy is drawing people to this investment.

Debt investment is, of course, not for everyone. There is greater risk when compared to other investments. Though you can mitigate this risk if you have done your research, there will always be an element of risk with any investment you make of this kind.

Make sure you have done due diligence before approaching an investment of this kind, here at FJP Investment we are always happy to help you through the process of a debt investment in the form of a loan note investment. With over six years of experience helping investors grow their money, we do the research to ensure that your money is secure. Find out more about what we do on our About Us page.

We can expect to see debt investment continue to enter the mainstream with more investors opting for this investment over others through the political instability and attractive returns debt investments provide.

To download the full report, click here.

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