dave4
Member of DD Central
Cynical is a hobby not a lifestyle
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Post by dave4 on Mar 17, 2024 11:46:28 GMT
Generalising.
Through covid lockdown and there after developments have had cost increases which has decreased profits.
Bridging loans seem to have become harder to find and slower to complete.
Refinancing a bridge has also become harder and slower to complete.
Moving forward as a potential investor.
What is peoples thoughts on investing in further developments or bridge loans.
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scooter
Member of DD Central
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Post by scooter on Mar 17, 2024 12:48:25 GMT
Hi, good question. I would like to get more stategic but unfortunately don't have any answers yet. My biggest problem seems to my inability to understand a process without taking part in it. I am looking forward to the answers /opinions on this one.
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Post by Penny Pincher on Mar 18, 2024 10:03:19 GMT
Returns on property backed loans are higher than pre-pandemic. If the higher return is insufficient for the increased risks that you point out then my first strategy for loan selection is the LTV ratio. I am still investing in property backed loans but I have reduced my maximum acceptable LTV ratio and am increasingly likely to select a low LTV in preference to higher return.
In other words; my confidence index has fallen 500 basis points.
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iRobot
Member of DD Central
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Post by iRobot on Mar 18, 2024 12:49:51 GMT
Have to say I'm not entirely sure what is being asked here but, on the assumption that Bridging loans and Development loans are being treated as two separate entities and that the nub of the question is whether the post-covid risk / reward ratio is attractive or not, then in a nutshell...
Development loans
My appetite for Development loans diminished to zero before covid. It seemed - and I appreciate this is a massive generalisation - that borrowers were buying a plot of land for X, getting a pie-in-the-sky valuation for 5X and then raising funds equivalent to around 70% of 5X and doing just enough to give the appearance that progress was being made (the degree of actual progress being directly proportional to the diligence and effectiveness of the platform, which varied significantly). This was exacerbated by 'serial borrowers' on some platforms - notably Lendy - that took multiple tranches amounting to several hundred thousand pounds for the purposes of 'planning application' or 'site preparation' without so much as a hole being dug. The LTV figures quoted in no way whatsoever reflected the actual value of the land / development at the time of the loan / tranche drawdowns and the interest rates offered to lenders in no way reflected the risk to lenders' capital.
Then, when the max LTV was reached, the façade fell and revealed a part-completed mess worth a fraction of the amount handed over by lenders. The issues with the Borrowers and the Platforms - which, IMO, range from mere incompetence to out-and-out fraud in both camps - made this type of lending untenable.
IMO, none of the above has changed post-covid and nor is it likely to change.
Bridging loans
Fundamentally, I think funding bridging loans has its place in a diverse portfolio of investments. I don't think the value of Residential properties as a sector will fall significantly, although I have less confidence in Commercial properties and that extends to the commercial letting of residential property. As interest rates on generic Savings Accounts have increased, my level of participation in P2P bridging loans has diminished to reflect the shift in risk/reward compared to safer, FCSC-backed alternatives.
If / when SA interest falls it may be time to increase exposure to P2P Bridging loans - but likely only on Residential properties. However, this would probably be platform specific with SoMo being the only platform that I have both first-hand experience of and remaining confidence in.
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