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Post by c0nfuzed on Jun 30, 2022 13:10:46 GMT
Just had an email so say that PP are unilaterally selling another flat in the Greenford block to repay part of the outstanding mortgage. The mortgage expires before the next resale opportunity but we were encouraged to keep hold of the block past it's 5 year anniversary and they don't seem keen to re-mortgage.
The whole model is messed up at this point, particularly for leveraged properties. How did they expect to refinance at the end of the mortgage term?
The property will be worth next to nothing by the time the final sale goes through.
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SteveT
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Post by SteveT on Jul 1, 2022 7:06:26 GMT
Just had an email so say that PP are unilaterally selling another flat in the Greenford block to repay part of the outstanding mortgage. The mortgage expires before the next resale opportunity but we were encouraged to keep hold of the block past it's 5 year anniversary and they don't seem keen to re-mortgage. The whole model is messed up at this point, particularly for leveraged properties. How did they expect to refinance at the end of the mortgage term?The property will be worth next to nothing by the time the final sale goes through. They expected that property valuations would have risen by then, not dropped. See 2007-8 sub-prime mortgage crisis, etc.
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Post by c0nfuzed on Jul 1, 2022 9:41:21 GMT
The rise in property value was never going to cover the 50% mortgage they took out when it was purchased though. They must have intended to re-mortgage for properties they intended to keep on the platform for more than 5 years?
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Post by drg on Jul 1, 2022 13:57:19 GMT
They are re-mortgaging many properties but when the property valuation has dropped it's harder to re-mortgage because the LTV is higher than when they originally took out the mortgage. Especially when taken in conjunction with the rising interest rates, it's probably not economical to re-mortgage some of these as they'd be paying more in interest than they'd be earning from rent. They usually give a vote for selling the units but I guess in a couple of cases it would just be such a clear disaster not to sell the units that they didn't want to risk it. The vote to sell units wins every time anyway though so it probably doesn't make much difference that they didn't put it to vote. This issue with the mortgage being higher LTV when it comes time to re-mortgage is just part of the risk of using leverage. Larger gains when the valuation goes up but have to take larger losses when the valuation goes down.
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SteveT
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Post by SteveT on Jul 4, 2022 7:00:16 GMT
The rise in property value was never going to cover the 50% mortgage they took out when it was purchased though. They must have intended to re-mortgage for properties they intended to keep on the platform for more than 5 years? It didn't need to rise enough to cover the mortgage. The model was (for example) buy property for 100, funded by mortgage 50 (@ 50% LTV) + investors 50. Rent over 5 years pays the mortgage interest, management costs plus dividends during the term. Sell property after 5 years for 120 (20% rise in value), pay off mortgage 50 and pay 70 to investors, who then make a leveraged 40% capital gain But if property value falls to 80 then either the investors have to accept a leveraged 40% capital loss or else extend the term, but the remortgage then requires 62.5% LTV (50 / 80) ...
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Post by c0nfuzed on Jul 12, 2022 15:59:01 GMT
Yep, makes sense. But it's rather depressing to see them sell off individual flats with no return. Just a small reduction in the mortgage.
The valuations are completely to pot as well!
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Post by scepticalinvestor on Jul 29, 2022 16:52:47 GMT
Well, they're going from strength to strength. More good news in the latest update -
In the next quarter, we will continue and accelerate the following measures to reduce exposure to interest rates:
- Sale of individual units within residential blocks: as shown on our Selling Record, we have completed sales of 27 units, with the large majority of proceeds being used to reduce mortgages; since June 2021, the loan-to-value ratio across the portfolio has reduced from 53% to 49%
- Reduce or suspend dividends of properties where it is necessary or advantageous to use net rental profits to reduce mortgage principal: as mentioned below, we have done this for 18 properties at this announcement
We've seen almost none of the benefit of the tearaway property market that we've had for the last 2+ years and are now going to get the full brunt of the rate hikes. We can't win!
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benaj
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Post by benaj on Jul 29, 2022 17:51:52 GMT
To be fair, PP is doing a better job then its ex competitor, which is in complete limbo.
11 properties sold in 22 is definitely progress instead of being “locked” away, the asset “lock down”
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