Pipeline Loans - PBL009

It may have been obvious from an earlier post I made, but it isn't the least bit clear to me how the 'partial' security will be effected.  The PBL009 description says "Our security is one half of the total, a stand‐alone building with basement flats and multiple rooms on the up on the upper levels."  I took that to mean the borrower had only a share of the whole property.  If, as suggested above, it's a case of SS/Lendy having a first charge on just one of the two buildings, then it's even more complicated as the two buildings are connected right now and to foreclose on one and try to sell it on its own would require separation works, the cost of which could be substantial -- not to mention the possibility of potential objections from the owner of the second building if that is someone other than the borrower.

This is starting to look like a bigger can of worms than it seemed to be before.

Sad to say this episode increases my concern over the capability of SS - set up to loan on boats - in the property market.

If they do not go ahead with the loan what happens to the boat loan that was rolled over?

I didn't think it had been rolled over?  I thought SS had paid it up to the lenders, and so now had all the risk in their hands?  I imagine, if the borrower couldn't repay them, then they'd arrange to sell his boat and recoup their costs that way.

I would ditto ramblin rose's sentiments even though I have not yet invested in this particular loan. I have had experience with one platform in the past where auctions have been either completely taken off or modified due to the 'crowd' finding chinks in the security on offer. 

A 100% charge over the entire property seems the only responsible way forward to me.

There are 3 scenarios for the value of the asset as I understand it:

1. The value of the property as it stands with its current use as a B&B.

2. If there is no planning consent in place for conversion of the whole to flats but enquiries reveal there is a reasonable likelihood of obtaining the necessary consents then the value would be enhanced by an element of 'hope value'. i.e. the market value would be the value of the property as it stands with current use plus a bit extra to reflect the reasonable chance of getting a more valuable planning use on it which would 'add value'.

3. If the necessary consents are already in place for conversion (which seems unclear) then the market value would be the Gross Development Value (GDV) less the costs of the buildings works, associated fees and a profit element for the developer. In other words, if the GDV is £900k but it will cost £300k to complete the works then the value of the asset being offered up as security at the start of the loan is not £900k.

What seems to me to be the case here is that the loan to value ratio has been based on the GDV which is a different thing to the market value of the asset being offered for security against the loan. You could never sell a property for its future GDV if the necessary works had not been carried out satisfactorily. To base the LTV on a GDV seems very risky since if the consents are not in place, if the works are not completed quickly and the completed flats are not able to be sold by the loan repayment date (only 6 months away which seems a quite ambitious timetable by the borrower) there must be a big question mark over whether the borrower will be in a position to repay. That's why I think a 100% charge over the property is essential, because even if the works to enhance value are not done or finished, the value of the asset should then still be sufficient to cover the value of the loan.

Having only half as security looks totally inadequate to me in the circumstances - plus, as has been pointed out, property isn't like a cake. You can't just carve it into pieces and assume the sum of the parts will equal the whole.  There are all sorts of complicating factors such as separation works to meet buikding regs, shared services etc etc.

I hope SS can get the freehold of the whole property (18 + 19) as security and that the loan can then proceed with a reasonable level of protection for investors.

To put it simply, the proposal was to loan £312k with the security being half of the property. In my opinion half of the value of the property is probably less than £312k which means this would potentially be not fully secured lending with a LTV of possibility more than 100%. That is a risky proposition and a rational, informed investor would want more than a 12% return in view of the risk level.

Judging by the numbers piling in to this loan whilst queries and concerns were being raised here, it seems probable that many are investing without reading this forum or, I guess, doing any other DD.

Sensible girl.