Warminster renewal

spyrogyra:  You may have misinterpreted what FS said.

I read that notice as saying the new loan was larger than the total of the loans being replaced so that the interest due on the old loans could be paid, meaning the loans could be renewed for a further six months -- with the interest for the future six months payable when the property was sold and the loans repaid, as is normal for FS loans.

It would be nice if the interest for the coming months was being prepaid, but I'm afraid that isn't supported by the numbers.  The old loans total £892.5k, and the interest rates to investors range from 12% to 15%.  The £542.5k loan is two months overdue, and the most recent loan still has two months to run.  I haven't done a proper calculation but if I assume the average rate is 13% and the average duration of loan is six months, then there should be just under £60k of interest accrued to this point.  If I increase that by 50% to account for FS's share of what the borrower owes, then we're looking at something like £90k being required to renew the loans under FS's usual terms.  The difference between the total of the old loans and the new loan is £107.5k, so there ought to be something like £17k of excess borrowing.  That's clearly not enough to cover six months' worth of interest going forward. 

I also note that FS didn't actually say that they were retaining the "small residual balance."  That may be going to the borrower.  We just don't know.

I agree with your calculations. That would be correct if we assume that the extra cash to be raised - £107500, would serve to pay the interest up until tomorrow across all tranches ( plus FS fees and interest).

But FS claims The loan of £1,000,000 will settle interest on all loans for a further 6 months with a small residual balance.

So it is down to interpretation what "settle interest for further 6 months" means.

If you hear the above quoted sentence, without being familiar with the way FS works , what would you think?

Most people would rightfully assume that the loan of 1mil includes the interest for the next six months. And that interest for the past months was paid separate.

I am still waiting for some answers from FS on the topic of double interest incurred during renewals.

I am concerned that the platform will struggle with the avalanche of renewals in the coming months and the consequences for a big number of loans, being stuck b/n repayment and renewal.

 

It will be interesting to see if this one fills. I'm in on the first tranche at 34% LTV now so quite comfortable waiting and seeing.

What happens if it doesn't fill? I guess the original investors would just have to hold it until it sells?  Over on Flexible Conditions they'd have probably just done that by default, why bother renewing when you can endlessly extend away 

FS, you haven't answered what would happen if the loan doesn't fill. Recently, another 1mil loan couldn't fill and has been cancelled. Who is paying the double interest incurred during renewal?

ISTM that nothing would change before the consolidated loan is fully funded -- the old loans still exist and continue, and the new loan doesn't really exist yet.  Once the new loan is fully funded, it would replace the old loans and those would be paid off.

And I don't think the platform software really has anything to do with dealing with the priorities.  I expect that when a loan is repaid, someone manually enters the proceeds into the system and tells it to distribute those proceeds among the investors.  If there's a shortfall in the proceeds, then the input would tell the system to repay the loans in the priority order, with the higher priority loans being paid in full and the lower priority loans being given whatever is left.  I don't think it would be a difficult calculation to make, so that probably could be done with a pencil and paper to work out the amount to be repaid to each loan.

If the new loan failed to fill completely within a month, then I expect it would be cancelled.  New money invested in that loan would be repaid, presumably along with accrued interest.  Investors in the old loans would be stuck in those until the property is sold or refinanced.  And if the borrower hasn't been trying to arrange a refinance elsewhere already -- which they probably haven't because FS effectively have offered to do that for them -- then the time it seems to take to arrange a mainstream (as opposed to altfi/bridging) refinance probably would mean sales would come first.

This all presumes the borrower is willing to sell the property for a reasonable price sooner rather than waiting for a better price later.  (Do we know whether the plan is to sell the property as individual apartments or in one chunk as a Buy-To-Let?)  The accruing interest ought to encourage an earlier sale.  Whether FS could charge default interest on the original loans has to be a fuzzy point, since the original loans would be overdue only because FS couldn't follow through on their agreement to refinance.  One for the lawyers, I'm afraid.

Completed Development in Warminster - Renewal (1545290266)

16/5/17 - 8 of the 12 flats have been sold subject to contract. Lawyers are in the final stages of completing the transaction. At this point the loan will be repaid in full with a new loan being posted for a lesser amount.