blender
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Post by blender on Aug 29, 2014 22:43:34 GMT
I avoid property - I think the risks of default are far higher than FC is predicting. Interesting, and worrying. The risk of default for interest only loans during the term is zero, because FC collects all the interest up front (from us) and pays it back to us without troubling the borrower for interest payments. Selling before term runs no risk of default - which is plan A. So the risk of default must be in plan B, the repayment of the principal, either through delay, or failure to sell and repay. Delay would require continued interest payments, which would be hard to default. I wonder what might trigger a default to be declared? Recoveries should be good, but of course we are not in it for recoveries. Where do you see the risk Davee39, a question from one who has not really thought through plan B?
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Post by davee39 on Aug 30, 2014 0:21:23 GMT
Plan A is fine until the secondary market is so saturated that nothing shifts, even at a big discount.
I know nothing about the property market apart from what I read in the popular press and the bitter experience of marketing a cheap terrace house over 3 years (1997 to 1999) with few viewers and no buyers (in the depressed north). Eventually the house was let and a 90% mortgage taken on a new property. After 3 more years we sold to the tenants.
I have seen many property booms and busts. Commercial property is also prone to large value swings.
The Banks have been burned by property debt and are no longer playing, but if they saw a profitable opportunity would they pass it up? They can certainly attract deposits at very low rates.
The London market is a fantasy plaything for the wealthy while presenting severe difficulties to those who cannot afford rents in a society which no longer considers decent housing to be a public need. My earnest hope is that there will be a political consensus to satisfy the housing demand through a truly massive program of traditional and non traditional housing, financed by a large public housing bond issue (£10 billion anyone). As to where it goes - well some mega majority Conservative MP in outer London needs to lose a bit of his grass!
I have a modest sum with Wellesley, they seem to know what they are doing - but even there 18 months is enough.
We have had a 0.5% Interest rate for 5 years, the BOE is sitting on £375billion of magic money from QE, and the BOE is twisting every sinew to avoid raising rates. Alongside this the economy has been showing reasonable growth for a couple of years but this must eventually lead to another downturn. What happens if next time the BOE has run out of levers? If liquidity dries up the assets are worth nothing, as happened in Ireland.
I would add that that I do not have money I can afford to lose, my investment income supplements my early retirement pension and investments are made through the good offices of my wife, a non taxpayer, so I do no suffer the tax hit on any losses.
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min
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Post by min on Aug 30, 2014 7:05:33 GMT
Plan A is fine until the secondary market is so saturated that nothing shifts, even at a big discount. . I have found that it is better to put property loan parts up for sale at par. That way someone new to FC who turns on auto bid is likely to pick them up. They don't fly out of the door but a steady trickle sell - about one a week.
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blender
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Post by blender on Aug 30, 2014 8:08:38 GMT
Thanks Davee39. I see that your concerns about the property market are general, and can agree with what you say, and presumably the concern leads you to worry about LTV being insufficient to avoid FC loan defaults. Agreed that planA fails if the loans cannot be sold without unacceptable discounts, but then if you are prepared to wait for repayment, and stick to the early tranches which are repaid first, then the risk of default should remain low and the returns OK. Agreed Min that the bulk of the parts are best at par - though I have not sold much recently like that, or at all.
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