While other lenders may offer forms of protection, Somo’s Second Charge Limited Capital Loss Guarantee provides direct, transparent and defined coverage, without the complexities of other credit enhancement mechanisms.

Rather than relying on estimates, insurance or complex layered protections, our Capital Guarantee acts as a straightforward, defined reserve, providing clear and reliable protection for investor capital. Backed by our proven history of zero capital losses, this level of certainty sets Somo apart and gives investors further peace of mind, knowing their capital has protections.

We’re seeing growing demand for Second Charge borrowing, with recent data showing they have the edge, having performed in line with our First Charge loans over the last five years click here for the report.

We believe many investors who have only ever worked with First Charge loans may be missing out. Through this Guarantee and our transparent performance data, we’re inviting investors to explore Second Charge loans with more confidence. Our goal is to dispel the myths around risk and let investors experience the performance for themselves.

“We have skin in the game”

Somo only makes a profit after you have earned all Capital and Interest. This will always be the case. This aligns our interest (see our T&Cs for more information).

Somo’s founding family and directors used to have capital in every deal. However, as the company grows the founding members are unable to put money into every single deal and as such, we want to assure you we still have “skin in the game.” This is why we’ve introduced our Second Charge Limited Capital Loss Guarantee for loans originated after 1st November 2025.

In addition, as we seek to safely grow the business and look to maintain our position as the market-leading Broker’s choice for Second Charge lending, we will be considering a limited number of Second Charge cases with a Loan to Value up to 75% (in line with market norms). The 10% Second Charge Limited Capital Loss Guarantee will, effectively, create a safety net.

The Second Charge Limited Capital Loss Guarantee is applicable to all Second Charge loans originated by Somo after 1st November 2025. It does not apply to loans originated before this date.

Whilst Somo’s First and Second Charge loans have demonstrated exemplary recovery speeds and return rates, Second Charge loans have in fact outperformed First Charge loans in both the advertised interest recovery rate and the speed of recovery.

As of April 2025:

• First Charge Loan Performance: Of 532 loans repaid, 100% capital repaid to investors 99.06% fully repaid with advertised interest.* Investors in First Charge loans achieved an average annual return of 9.36%.
• Second Charge Loan Performance: Of 580 loans repaid, 100% capital repaid to investors, 99.66% fully repaid with advertised interest.* Investors in Second Charge loans achieved an average annual return of 10.33%.

*Historical Performance Risk Statement
All investors received 100% of their capital investment across over 1,600 redeemed loans from inception in 2014 to March 2025. A capital loss is categorised if and when there are no reasonable avenues of recovery still to progress.

To support the 10% Capital Guarantee offered to investors on Second Charge property loans, Somo will maintain a dedicated loss reserve calculated as a percentage of the total Second Charge loan book. This reserve policy reflects both statistical probabilities and extreme but possible market volatility scenarios.


Stress Case - Macro Market Disintegration Scenario

In the event of a severe and systemic downturn, assume that 30% of the loan book defaults in a single year, with property values falling significantly and triggering Somo’s capital protection obligations.

• Scenario Assumptions: 30% of £40m loan book affected: £12 million
• Capital protection liability (10% of affected exposure): £1.2 million

In this high-stress environment, Somo would be required to fund £1.2 million in guaranteed payments to investors. This is in our opinion, a severe and unlikely yet plausible scenario.

As such we will maintain a cash or asset reserve buffer at all times to fulfil this obligation.


Capital Strength & Resilience

The parent company currently holds £24 million in net assets, more than sufficient to meet even this extreme obligation. A £1.2 million payout would represent just 5% of group net assets, leaving the company well-capitalised and fully operational.

• The Capital Guarantee is capped at £1,200,000 for the entirety of the loan book.
• If Somo for any reason pays out up to £1,200,000 under the Capital Guarantee then no further payments will be made - the Capital Guarantee will be exhausted for all other loans.
• Somo will apply the capped amount on a first come first served basis.
• Somo retains the right to remove the Capital Guarantee, or amend the amount available under the Guarantee (higher or lower) at any time in the future (for example if there is a claim that reduces the amount available, Somo may increase the Cap).
• The Guarantee will only be applicable to Second Charge loans originated after 1st November 2025, not to previous Second Charge loans.
• A repayment of capital under the Capital Guarantee is at the complete discretion of Somo, even if there are competing claims.

Finally, this Cash Reserve is also a Cap of our exposure under the Second Charge Limited Capital Loss Guarantee. This is to limit our liability and exposure to any unforeseen Black Swan event.

We have struck the balance of Capital Loss Guarantee protection to provide a Reserve for any losses set at a level in line with a severe yet plausible scenario, and limited this amount so that if there were a Black Swan event then the exposure under the Guarantee would be limited, therefore protecting the Company for unquantifiable losses and in turn balancing the protection of all investors.

While we are highly confident in the strength of our underwriting and the protection offered by the equity cushion, it is not prudent for the company to guarantee 100% of potential losses. Offering full coverage would expose the company to extreme downside risk in the event of a Black Swan event or systemic market failure. By capping the guarantee at 10%, we provide meaningful investor protection while maintaining the financial resilience and operational continuity of the business, even under severe stress, which is all for the benefit of investors.

Built for Volatile Markets: A Look at Some Extreme Cases

Let’s look at how a Second Charge loan holds up in a tough market or property correction.

Loan Origination

• Property Value: £1,000,000

• 1st Charge Loan: £500,000

• 2nd Charge Loan (Investor position): £200,000

• Combined Loan-to-Value (LTV): 70%

• Somo’s Second Charge Capital Guarantee: 10% of Investor Capital

SCENARIO 1 - 10% PROPERTY VALUE DECLINE

Based on a 10% Property Value Decline, £50,000 of legal and recovery costs and First Charge balance increasing 10% (2 years of unpaid arrears).

· Final Property Sale Price: £900,000

· First Charge Debt (Incl. interest): £550,000

· Legal & Recovery Costs: £50,000

· Remaining Funds for Second Charge Investors: £300,000


Recovery Outcome:

· Capital Owed to Investors: £200,000

· Capital Returned to Investors: £200,000

· Investor Interest Owed in Default (1.1% x 24 months): £52,800

· Investor Interest Earned at Advertised Rate: £52,800


Result:

· Net Return to Investors: Full Capital and Interest

· Net Capital Loss: £0


· The full £200,000 investment is recovered. Investors suffer no capital loss and Somo's Capital Guarantee is not activated.

SCENARIO 2 - 15% PROPERTY VALUE DECLINE

Based on 15% Property Value Decline, £50,000 of legal and recovery costs and First Charge balance increasing 10% (2 years of unpaid arrears).

· Final Property Sale Price: £850,000

· First Charge Debt (incl. interest): £550,000

· Legal & Recovery Costs: £50,000

· Remaining Funds for Second Charge Investors: £250,000


Recovery Outcome:

· Capital Owed to Investors: £200,000

· Capital Returned to Investors: £200,000

· Investor Interest Owed in Default (1.1% x 24 months): £52,800

· Investor Interest Earned at Advertised Rate: £50,000


Result

· Net Return to Investors: Full Capital and Partial Interest

· Net Capital Loss: £0


· The full £200,000 investment is recovered. Investors suffer no capital loss and Somo's Capital Guarantee is not activated.

SCENARIO 3 - 20% PROPERTY VALUE DECLINE

Based on 20% Property Value Decline, £50,000 of legal and recovery costs and First Charge balance increasing 10% (2 years of unpaid arrears).

· Final Property Sale Price: £800,000

· First Charge Debt (incl. interest): £550,000

· Legal & Recovery Costs: £50,000

· Remaining Funds for Second Charge Investors: £200,000


Recovery Outcome:

· Capital Owed to Investors: £200,000

· Capital Returned to Investors: £200,000

· Investor Interest Owed in Default (1.1% x 24 months): £52,800

· Investor Interest Earned at Advertised Rate: £0


Result:

· Net Return to Investors: Full Capital and No Interest

· Net Capital Loss: £0


· The full £200,000 investment is recovered. Investors suffer no capital loss and Somo's Capital Guarantee is not activated.

SCENARIO 4 - 25% PROPERTY VALUE DECLINE

Based on 25% Property Value Decline, £50,000 of legal and recovery costs and First Charge balance increasing 10% (2 years of unpaid arrears)

In this version, the only change is a steeper drop in property value:

· Final Property Sale Price: £750,000

· First Charge Debt (incl. interest): £550,000

· Legal & Recovery Costs: £50,000

· Remaining Funds for Second Charge Investors: £150,000


Recovery Outcome:

· Capital Owed to Investors: £200,000

· Capital Returned to Investors: £150,000

· Investor Interest Owed in Default (1.1% x 24 months): £52,800

· Investor Interest Earned at Advertised Rate: £0


Result:

· Net Return to Investors: £170,000 of Capital and No Interest

· Net Loss: £30,000 (15% of capital)

· Somo’s Capital Guarantee absorbs 40% of the potential Capital Loss, reducing Investor’s exposure from a 25% loss to just 15%.

Important Note, this is on a decline of 25% property correction.


A 25% decline in value could occur in two main scenarios:


1.   Negligent Valuation: If the original property valuation was overstated by more than 15%, this may constitute professional negligence. In such cases, we would have a legal right of action against the valuer's indemnity insurance to recover the loss. Courts generally consider deviations over 15% to be actionable so we would hope for a full recovery from the insurance company.

2.   Market Crash: Alternatively, if there is a significant fall in the property market which may result in a 25% reduction. While rare, this is a macroeconomic event outside of all control and investors must consider whether they feel this is realistic or not.


On either basis — a negligent valuation or a broader market correction — we are comfortable offering the 10% Second Charge Limited Capital Loss Guarantee.

Summary

In scenarios as above, where there is extensive litigation (£50,000), and the loan balance increases 10% (2 years of arrears at 5%) and there is a property market decrease, the Second Charge Capital Guarantee is not required with a 10%,15% or 20% property value decline.

However, a property value decline of over 25%, coupled with all the above factors, would result in a 15% capital loss provided that we do not have an actionable case of valuer negligence and the property market corrects by 25%, which may well be in the case if the surveyor was negligent by more than 15% on the valuation.

The capital protection model is fully funded under normal and actuarial conditions, while remaining highly resilient even under severe market stress. The group’s current net asset position provides a deep capital cushion with a Cap to limit the liability and protect the Company, supporting both investor confidence and long-term risk integrity.