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Post by mrclondon on Feb 7, 2019 11:19:24 GMT
fundingsecure - now that the first loan with a term longer than 6 months is open for funding (Tranche 3 of Lad****k in Scotland) can you confirm your intentions for the SM discount bandings please. For basic rate tax payers, a 1% discount only covers the inherited tax liability of the first 5 months or so of the loan. This needs opening up to 2.5% (ideally still at 0.1% increments) to allow a 11 month loan to be bought by basic rate tax payers at face value after tax liability, not at an effective premium.
I'm assuming here that a 12 month loan means no interest payment until maturity (or beyond) so the effective annual rate is lower than a 6 month loan as there is no opportunity to compound the interest after six months.
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paulb
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Post by paulb on Feb 7, 2019 13:19:49 GMT
there is no opportunity to compound the interest after six months.
Isn't that already true of the vast majority of loans (by value, at least) already? 
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arby
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Post by arby on Feb 7, 2019 14:49:26 GMT
Tranche 1 is 47 days late. IMHO that should be renewed before any further tranches are drawn down I don't deny that it would be ideal if that could always be the case, but just trying to add a further view- if tranche 1 is renewed first, then it's great for the investors who are wanting to cash out, while it makes no difference to those who are willing to continue in the loan, but for the borrower it's terrible as they get no new money and actually have to pay money out for interest to renew. You may rightly say that you don't care about the borrower, and I agree, but it's also worse for the investors who are still in the loan- their best hope of getting a positive outcome is successful completion of the project- if new tranches are constantly delayed or even not issued as earlier tranches get renewed first then it massively increases the chance of project delays and increased costs so it can increase the risk of the completed development LTV not being achieved. As said at the beginning, this is just the opposite argument, with the real game finding the right balance between being fair to investors while still making sure new funds are advanced quickly enough to allow the development to move towards completion, which can also be seen as being fair to investors. (obviously anything even remotely akin to the whitehaven fiasco of new tranches loaned against no project progression is not what I'm talking about, and that has been covered previously, I'm only discussing projects where there is clear and demonstrable progress, and new funds are required to continue that progress).
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Godanubis
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Post by Godanubis on Feb 7, 2019 15:37:12 GMT
Tranche 1 is 47 days late. IMHO that should be renewed before any further tranches are drawn down I don't deny that it would be ideal if that could always be the case, but just trying to add a further view- if tranche 1 is renewed first, then it's great for the investors who are wanting to cash out, while it makes no difference to those who are willing to continue in the loan, but for the borrower it's terrible as they get no new money and actually have to pay money out for interest to renew. You may rightly say that you don't care about the borrower, and I agree, but it's also worse for the investors who are still in the loan- their best hope of getting a positive outcome is successful completion of the project- if new tranches are constantly delayed or even not issued as earlier tranches get renewed first then it massively increases the chance of project delays and increased costs so it can increase the risk of the completed development LTV not being achieved. As said at the beginning, this is just the opposite argument, with the real game finding the right balance between being fair to investors while still making sure new funds are advanced quickly enough to allow the development to move towards completion, which can also be seen as being fair to investors. (obviously anything even remotely akin to the whitehaven fiasco of new tranches loaned against no project progression is not what I'm talking about, and that has been covered previously, I'm only discussing projects where there is clear and demonstrable progress, and new funds are required to continue that progress). I agree it is ok for us investors but the attraction for the borrower is that this is basically an interest only loan similar to a old style bridging loan traditional lenders no longer offer. The total amount to be lent is agreed at the onset and is then drip fed by drawdown so as to keep interest to a minimum. In some projects the sale of completed flats etc allow for repayment of early traunches. This doesn’t affect the line of credit offered. If there is extra the borrower can do what they like with it. If sufficient progress or sales have not been achieved then the loan repayments will be delayed. Forcing the issue of payment could force the borrower into administration where the first part of the loan would probably just become part of the total owing to all secured lenders. Never a good idea Prepare yourself for all 6 month property loans to overrun for up to 2 years . The point where >90% are resolved. This timeframe should be shorter with FS’s new more robust recovery and defaulting strategy. ( we hope)
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trium
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Post by trium on Feb 8, 2019 8:37:08 GMT
I don't deny that it would be ideal if that could always be the case, but just trying to add a further view- if tranche 1 is renewed first, then it's great for the investors who are wanting to cash out, while it makes no difference to those who are willing to continue in the loan, but for the borrower it's terrible as they get no new money and actually have to pay money out for interest to renew. You may rightly say that you don't care about the borrower, and I agree, but it's also worse for the investors who are still in the loan- their best hope of getting a positive outcome is successful completion of the project- if new tranches are constantly delayed or even not issued as earlier tranches get renewed first then it massively increases the chance of project delays and increased costs so it can increase the risk of the completed development LTV not being achieved. As said at the beginning, this is just the opposite argument, with the real game finding the right balance between being fair to investors while still making sure new funds are advanced quickly enough to allow the development to move towards completion, which can also be seen as being fair to investors. (obviously anything even remotely akin to the whitehaven fiasco of new tranches loaned against no project progression is not what I'm talking about, and that has been covered previously, I'm only discussing projects where there is clear and demonstrable progress, and new funds are required to continue that progress). I agree it is ok for us investors but the attraction for the borrower is that this is basically an interest only loan similar to a old style bridging loan traditional lenders no longer offer. The total amount to be lent is agreed at the onset and is then drip fed by drawdown so as to keep interest to a minimum. In some projects the sale of completed flats etc allow for repayment of early traunches. This doesn’t affect the line of credit offered. If there is extra the borrower can do what they like with it. If sufficient progress or sales have not been achieved then the loan repayments will be delayed. Forcing the issue of payment could force the borrower into administration where the first part of the loan would probably just become part of the total owing to all secured lenders. Never a good idea Prepare yourself for all 6 month property loans to overrun for up to 2 years . The point where >90% are resolved. This timeframe should be shorter with FS’s new more robust recovery and defaulting strategy. ( we hope) I do agree with much of what you say and I don't think that borrowers are entirely to blame. Fact is FS have never previously given them a choice - it's a six-month loan period, however inappropriate that may be for the borrower's purpose. Perhaps the new 12-month loans will provide a partial solution, though the one currently being offered looks to be very unpopular with investors apparently preferring the Tranche 1 renewal at 6 months. I wonder how today's 12-month offering will go? I don't think investors generally mind lending money for 2 years - I quite happily lend for as long as five years on Assetz Capital and on Zopa (boo hiss!) but I know at the outset what the situation is. It's the failed promise of a specific repayment date that rankles - especially if you bought the loan at 30-odd days to go hoping to exploit a high effective rate (in my early FS days I did that with D*rwent Road, The D*ll, Lytham St Annes, W*lton Br*ck Road and several others, all still unpaid). There's also the stigma (perhaps unfairly) attached to the notion that a borrower who fails to pay on the nail is an irresponsible and untrustworthy borrower.
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Godanubis
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Anubis is known as the god of death and is the oldest and most popular of ancient Egyptian deities.
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Post by Godanubis on Feb 8, 2019 11:09:38 GMT
I agree it is ok for us investors but the attraction for the borrower is that this is basically an interest only loan similar to a old style bridging loan traditional lenders no longer offer. The total amount to be lent is agreed at the onset and is then drip fed by drawdown so as to keep interest to a minimum. In some projects the sale of completed flats etc allow for repayment of early traunches. This doesn’t affect the line of credit offered. If there is extra the borrower can do what they like with it. If sufficient progress or sales have not been achieved then the loan repayments will be delayed. Forcing the issue of payment could force the borrower into administration where the first part of the loan would probably just become part of the total owing to all secured lenders. Never a good idea Prepare yourself for all 6 month property loans to overrun for up to 2 years . The point where >90% are resolved. This timeframe should be shorter with FS’s new more robust recovery and defaulting strategy. ( we hope) I do agree with much of what you say and I don't think that borrowers are entirely to blame. Fact is FS have never previously given them a choice - it's a six-month loan period, however inappropriate that may be for the borrower's purpose. Perhaps the new 12-month loans will provide a partial solution, though the one currently being offered looks to be very unpopular with investors apparently preferring the Tranche 1 renewal at 6 months. I wonder how today's 12-month offering will go? I don't think investors generally mind lending money for 2 years - I quite happily lend for as long as five years on Assetz Capital and on Zopa (boo hiss!) but I know at the outset what the situation is. It's the failed promise of a specific repayment date that rankles - especially if you bought the loan at 30-odd days to go hoping to exploit a high effective rate (in my early FS days I did that with D*rwent Road, The D*ll, Lytham St Annes, W*lton Br*ck Road and several others, all still unpaid). There's also the stigma (perhaps unfairly) attached to the notion that a borrower who fails to pay on the nail is an irresponsible and untrustworthy borrower. Yip FS Should change the 6 months to the full timescale of the projected development this would require the borrower to find conciderably more cash to pay the interest upfront . I do consider every loan a 2 year loan on FS so as not to get too hungup when loans go over. Reduce the LTV% to 90% of a valuation suggested by a property Auction valuer.
The big advantage of FS is the ability to avoid Tax and that can only be achieved on the intrest only model and should remain.
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Post by mrclondon on Feb 8, 2019 12:13:33 GMT
Whilst I agree that a disconnect between loan term (e.g. 6 months) and a dev project timeplan (e.g. 18 months) does no-one any favours, simply writing longer term loans is not going to provide a universal solution without better loan covenants to tie the borrower into sticking (roughly) to the timeplan.
Lets take an example, Lea**** Road, Wallasey originally activated May 2017, renewed twice (the first renewal increased the loan so probably rolled up the interest) and is now 2.5 months overdue. The loan was requested for the development of a plot of land, however nothing has actually been done during the time of the loan. After walking the site myself last summer, it feels to be a land bank transaction, IMO developing this site makes no sense unless the neighbouring much larger site (in other ownership) is also redeveloped. There are similiar issues with the recently defaulted loans to another Wirral developer who claimed to be developing multiple sites which were actually just land bank transactions (D*ll etc). Do we give these borrowers 18 month loans, for them to do nothing and to not have to justify doing nothing for a period of 18 months ?
The FS model is the borrowers pay interest on the maturity of the loan NOT upfront, it is lenders that take the risk that as well as potential capital losses there will be no interest received to (partially) compensate. This is very different to the retained interest model of other platforms which whilst a nonsense in the sense that you are receiving your own funds back from escrow as interest, it does provide a fig leaf to platforms when capital losses occur.
I have some concerns about how 12 month loans will work in the SM. I raised yesterday the obvious issue of the discount bandings vs tax liability, but there is a subtler issue that is of equal concern. The (notional) return on SM purchases is of course calculated on the purchase price which includes the accrued interest. The more the accrued interest, the lower the (annual) return based on purchase price. This needs working through on paper/spreadsheet to really appreciate, but aside from the maths, it should be clear that SM purchases are purchasing capital (which may be subject to losses) and already accrued interest (that may never be paid).
I'm still open minded re 12 month FS loans, but my gut feel is the risk on such loans could in some cases be significantly higher than a 6 month loan to the same borrower.
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Godanubis
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Post by Godanubis on Feb 8, 2019 12:39:55 GMT
Whilst I agree that a disconnect between loan term (e.g. 6 months) and a dev project timeplan (e.g. 18 months) does no-one any favours, simply writing longer term loans is not going to provide a universal solution without better loan covenants to tie the borrower into sticking (roughly) to the timeplan.
Lets take an example, Lea**** Road, Wallasey originally activated May 2017, renewed twice (the first renewal increased the loan so probably rolled up the interest) and is now 2.5 months overdue. The loan was requested for the development of a plot of land, however nothing has actually been done during the time of the loan. After walking the site myself last summer, it feels to be a land bank transaction, IMO developing this site makes no sense unless the neighbouring much larger site (in other ownership) is also redeveloped. There are similiar issues with the recently defaulted loans to another Wirral developer who claimed to be developing multiple sites which were actually just land bank transactions (D*ll etc). Do we give these borrowers 18 month loans, for them to do nothing and to not have to justify doing nothing for a period of 18 months ?
The FS model is the borrowers pay interest on the maturity of the loan NOT upfront, it is lenders that take the risk that as well as potential capital losses there will be no interest received to (partially) compensate. This is very different to the retained interest model of other platforms which whilst a nonsense in the sense that you are receiving your own funds back from escrow as interest, it does provide a fig leaf to platforms when capital losses occur.
I have some concerns about how 12 month loans will work in the SM. I raised yesterday the obvious issue of the discount bandings vs tax liability, but there is a subtler issue that is of equal concern. The (notional) return on SM purchases is of course calculated on the purchase price which includes the accrued interest. The more the accrued interest, the lower the (annual) return based on purchase price. This needs working through on paper/spreadsheet to really appreciate, but aside from the maths, it should be clear that SM purchases are purchasing capital (which may be subject to losses) and already accrued interest (that may never be paid).
I'm still open minded re 12 month FS loans, but my gut feel is the risk on such loans could in some cases be significantly higher than a 6 month loan to the same borrower.
My mistake was thinking of renewals. Attached is something I knocked up that may be of use for those that buy and sell on SM (feel free to fix bugs or improve)
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Post by df on Feb 8, 2019 16:13:04 GMT
Whilst I agree that a disconnect between loan term (e.g. 6 months) and a dev project timeplan (e.g. 18 months) does no-one any favours, simply writing longer term loans is not going to provide a universal solution without better loan covenants to tie the borrower into sticking (roughly) to the timeplan.
Lets take an example, Lea**** Road, Wallasey originally activated May 2017, renewed twice (the first renewal increased the loan so probably rolled up the interest) and is now 2.5 months overdue. The loan was requested for the development of a plot of land, however nothing has actually been done during the time of the loan. After walking the site myself last summer, it feels to be a land bank transaction, IMO developing this site makes no sense unless the neighbouring much larger site (in other ownership) is also redeveloped. There are similiar issues with the recently defaulted loans to another Wirral developer who claimed to be developing multiple sites which were actually just land bank transactions (D*ll etc). Do we give these borrowers 18 month loans, for them to do nothing and to not have to justify doing nothing for a period of 18 months ?
The FS model is the borrowers pay interest on the maturity of the loan NOT upfront, it is lenders that take the risk that as well as potential capital losses there will be no interest received to (partially) compensate. This is very different to the retained interest model of other platforms which whilst a nonsense in the sense that you are receiving your own funds back from escrow as interest, it does provide a fig leaf to platforms when capital losses occur.
I have some concerns about how 12 month loans will work in the SM. I raised yesterday the obvious issue of the discount bandings vs tax liability, but there is a subtler issue that is of equal concern. The (notional) return on SM purchases is of course calculated on the purchase price which includes the accrued interest. The more the accrued interest, the lower the (annual) return based on purchase price. This needs working through on paper/spreadsheet to really appreciate, but aside from the maths, it should be clear that SM purchases are purchasing capital (which may be subject to losses) and already accrued interest (that may never be paid).
I'm still open minded re 12 month FS loans, but my gut feel is the risk on such loans could in some cases be significantly higher than a 6 month loan to the same borrower.
Feels to me that the idea of introducing longer term loans wasn't thought through before implementing it. 6 months without monthly interest is already too long for property loans. I think it is part of the same problem - applying pawn mechanism to property lending. And without bringing SM discount to what it used to be or at least extending it to a reasonable level new 12 month loans are not for me - too much risk.
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Post by mrclondon on Feb 8, 2019 17:02:41 GMT
Two more observations following on from my previous post.
Another example of a development loan where a 12 month term would not have been in lenders interests is Bromyard, Herefordshire which FS has declined to renew after the initial first 6 months (after txfr from COL) based on input received from the IMS regarding the site.
One of the issues with the retained interest model of other platforms has been the historic "gaming" of the interest by HNW investors - buying in the PM, then reselling to predominately retail investors in the SM having stripped out much of the risk free return. With hindsight I fear this is what drove the PM on Lendy allowing HUGE loans to be filled with relative ease. Wihilst the FS model of interest paid on maturity by borrowers might appear to reduce the "gaming" aspect, the way the SM is structured still permits it as the seller receives the "interest" (as a capital gain) with zero risk once the sale takes place.
[Admin Note]
I've now split this discussion away from the Lad****k Scotland thread as it clearly has wider significance.
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Godanubis
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Anubis is known as the god of death and is the oldest and most popular of ancient Egyptian deities.
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Post by Godanubis on Feb 8, 2019 19:02:52 GMT
By allowing higher discounts on SM it would help those wanting a modest return with little risk .
The risk would be taken by those who buy with their FISA funds and have the nerves to see things out.
It would help the smaller investors where even the lowest cost parts are high % of their investments.
I'm not a philanthropist this would be beeficial to flippers as the margins would be wider.
Anyone buying on SM would have to stand by their choices as to what loans they want V Enhanced returns and higher risks involved
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Post by df on Feb 8, 2019 23:00:37 GMT
By allowing higher discounts on SM it would help those wanting a modest return with little risk .
The risk would be taken by those who buy with their FISA funds and have the nerves to see things out.
It would help the smaller investors where even the lowest cost parts are high % of their investments.
I'm not a philanthropist this would be beeficial to flippers as the margins would be wider.
Anyone buying on SM would have to stand by their choices as to what loans they want V Enhanced returns and higher risks involved
I was content with the change (limiting premium/discount to 1%). Not a popular view, iirc this change was widely criticised in this forum. I thought it was appropriate to protect unexperienced investors from making big mistakes and restrict flippers from exploiting "the innocents". It seemed OK to me because liquidity was good, most of loans could be easily sold at 0.2-0.6% discount. But soon after the change the goal post moved and now we see massive queues at -1%. I've got a substantial list of property loans that I put for sale @-1% when they were 2-3 months old - overdue, too old for sale or definitely won't be sold. As a result I virtually stopped investing in "new" available loans. If this 12 month trend becomes a norm and bling becomes a history, I don't think I will continue investing on this platform, but will keep renew buttons green for bling and "static caravans".
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Godanubis
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Post by Godanubis on Feb 9, 2019 1:56:51 GMT
Ah the good old days when -1% was rare ocurrance. It could change with a slight modification where those selling at discount could easily see their sale price and possible loss. Using something like this Time to Sell Calculations.xlsx (11.78 KB)
From that you can see selling at 31 day left at -1% gives a return similar to holding to maturity at 20% tax and about 2% higher for 40% tax payers The discounts assume buying at start obviously buying at-1% then selling at-1% would keep the primary rate.
If changed to -1.5% max and folk knew exactly what their returns would be I think there wouldn’t be many willing to get such a low return. The lack of timely repayments also reduces the availability of free cash to buy, forcing the discount higher for those who want out to free up cash or avoid tax and default risks.
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