Property has always been a relatively reliable way to build wealth, whether through traditional buy-to-let or hands-on development. But in recent years, a different approach has started to gain some momentum: property loan notes.
Loan notes offer a simpler, more passive way to invest in property without directly owning bricks and mortar. They’re essentially a form of private lending: you provide funds to a developer for a set period, (usually between 12 and 36 months) and in return, you receive a fixed rate of interest at typically between 8% and 12% annually.
It’s a clear-cut agreement: the developer gets the funding they need for a project, and you get a predictable return, often with the option to have interest paid annually or rolled up and paid at the end of the term.
As of 2023, the UK’s alternative property finance market surpassed £12 billion, with loan notes becoming an increasingly popular part of that picture. Investors are drawn to the fixed income and the opportunity to support real-world property developments - without taking on the responsibilities that come with ownership or management.
Some loan notes are secured against the underlying property or land, offering an added layer of protection. Others may be unsecured, so it's important to understand the terms before you invest. Many providers now offer transparent documentation, defined exit strategies, and third-party trustees to help give investors added confidence.
What about FCA regulation?
One important point to be aware of: most property loan notes are not regulated by the Financial Conduct Authority (FCA). This doesn’t mean they’re illegitimate; but it does mean investors don’t get the same protections as they would with regulated financial products like stocks, ISAs, or pensions.
For example, if a loan note investment fails, you wouldn’t be covered by the Financial Services Compensation Scheme (FSCS) or have access to the Financial Ombudsman Service. That’s why these products are usually marketed to high-net-worth individuals or sophisticated investors, who are deemed able to assess the risks themselves.
The takeaway? Regulation status isn’t a reason to avoid loan notes altogether, but it does mean due diligence is more than essential. Always review your developer’s track record, securities offered, and legal structure of the investment before committing any funds.
Still, for investors looking to diversify, earn passive income, or support property projects without direct involvement, loan notes present a flexible and potentially rewarding option. They can sit neatly alongside more traditional routes like buy-to-let investments, helping to round out a balanced and future-proof portfolio.
