merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Sept 3, 2014 17:28:01 GMT
Over the last six months we have seen many of the P2P lenders offering more and more property based loans. AC more or less grew out of the property/mortgage business. FC grew into property as has SS and a few others.
In AC's case they had always chosen to back their loans with mainly solid bricks and mortar charges, together with a number of bridging loans. FC got into what amounts to the mortgage business at a fairly basic level, possibly in order to soak up excess cash inflowing from lenders but possibly just for its shear growth potential. SS started with boats and few loans on offer have been property ones rather than the type that bob up, and down a bit.
Last week I got chatting to some serious and very knowledgeable investor friends of mine over a pie and a pint in London and almost the whole conversation was about what was described as "the fools paradise" or in other words the current state of the London property market. A lot of the discussion was about what they saw as the inevitable "correction" of the market and what size of hit the market was likely to take. I persistently asked about timing and when they thought this would happen but got no sensible answers other than don't buy and if you have to, definitely don't hold. I got a similar response to how large the correction might be with views ranging from 15% to 50%. Returning to the question when via the circuitous route of what will cause it? The consensus was "after the next election" or when WW3 kicks off or when sense returns. No real help there then, only lots to alarm.
Whilst on my journey back to West Wales by train I kept myself occupied by looking at my current investments in property and got a bit worried. I decided I would definitely hang on to property I owned (most by value in the SE but bought in the last downturn) but I would heavily prune elsewhere and particularly in P2P. The trouble is it is very difficult to weigh up the true risks involved. It is all very well to look at loan to value calculations but if the market did bomb what would the true effects be? However that is not the only factor as a major correction would almost certainly seize up the whole market just like it did last time.
Having played devils advocate once again what are your thoughts on this?
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Post by mogzi on Sept 3, 2014 17:33:39 GMT
Totally agree. I too have spoken with many 'people in the know' and have been told the same thing. It's common sense also really based on 2008 and previous cyclical activity.
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shimself
Member of DD Central
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Post by shimself on Sept 3, 2014 17:46:50 GMT
Totally agree. I too have spoken with many 'people in the know' and have been told the same thing. It's common sense also really based on 2008 and previous cyclical activity. A great truth from Hollywood Nobody knows nothin'
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Post by bracknellboy on Sept 3, 2014 18:21:17 GMT
The problem with this view - even though it is one I partly subscribe to - is that the London property market has nearly always defied / avoided the worst of the various downturns in property value over the years. Though I'm happy to be corrected on that one. Location counts for a lot (so also not all of London). I have however recently taken to largely avoiding the London based property loans on FC and AC because of my concerns. But then I broke that again the other day on FC, and took up a very small part of Central London Bridging Loan today on AC (only £100). So no consistency there then.
I would be concerned about property values in the really prestigous parts of London (contrary to the above historic perspective.....): in recent times these seem to have been abnormally driven by flows of money from abroad, and while I have no stats to back it up, the steep increase in prices in these areas seems in terms relative to the rest of the market disproportinate to historic trends. And I would be concerned that on-going issues with respect to Russia could have a significant impact: it probably wouldn't take the removal of more than a small %age of the investment money chasing these properties to have a substantive effect on prices.
Other parts of London would be completely unaffected by any such considerations, though of course exposed to impact from changes in the wider economy. But as always, location location location. I've taken some slices of the Ealing loans on FC for example, despite my 'avoid london' non-strategy: this is a good quality area which should be a long term up thanks to e.g. cross rail. Just a pity I sold my flaming flat in Ealing a few years ago........
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Post by GSV3MIaC on Sept 3, 2014 18:58:56 GMT
Thirded! A 50% crash in a lot of places is quite feasible ( see Ireland, Spain, etc) triggered by either more supply, less demand or less liquidity. A good plague scare ( or actuality) or terrorist activity could make London in particular unattractive. I need property to live in, which is already enough exposure for me.
Timing is impossible to predict .. Probably the usual 'when you least expect it'. 8>.
I'd really rather invest in productive companies, although builders are a bit of a intermediate case.
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Post by bracknellboy on Sept 3, 2014 19:07:43 GMT
.... Timing is impossible to predict .. Probably the usual 'when you least expect it'. 8>. ... I have a friend who spent 15 years telling everyone - including me - that the London property market (well the market in general but we were both london based) was 'overpriced'. When 2008 ish happened, with a sheepish grin he was able to say "I told you so". Reminds me of the stopped clock which is accurate once every 12 hours, or indeed good old Spike M's epitaph..."I told you I was ill....".
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Post by davee39 on Sept 4, 2014 8:36:22 GMT
Finally some common sense.
Funding Circle have dived in with an astonishingly poor risk/return prospect for the lender, and FC itself for the loans they have underwritten and self invested.
Saving Stream are now > 90% property and have a business model which remains somewhat opaque. The cash pours in tempted by an apparent 12% return.
Wellesley have grown astonishingly quickly, but only just beat RS on the longest rates.
These lenders are filling a gap very deliberately created by the banks and at some point, particularly with the less well capitalized sites, it will end in tears.
The latest SS property loan has sparked a lively debate on their Forum. Whatever the arguments regarding the safety or valuations attached to this loan, much of it appears to been filled by lenders on automatic pilot. I hope these lenders are only playing with money they can afford to lose.
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merlin
Minor shareholder in Assetz and many other companies.
Posts: 902
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Post by merlin on Sept 4, 2014 11:36:46 GMT
Following on from my post that started this thread on 31st August I reworked my personal risk formula and got out my pruning knife. I chopped everything with an LTV of more than 70% outside London and 60% in the London area. Now I am sitting on a pile of cash and contemplating my navel. I have put some money back into high yielding stocks but fear I may have bought into the top of a market also probably overdue for a correction. Perhaps I should invest in classic cars or antiques, or even go and buy a new car?
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Post by jackpease on Sept 4, 2014 13:05:57 GMT
And its not just investing in property loans it's investing in loans backed by property.... and if one accepts that, one is pushed back to unsecured lending/director's guarantees etc - ie Funding Circle, who we love to hate but may have the last laugh if they can avoid being dazzled by bridging loans.
It'd be very reassuring to see some sort of track record of all these bridging loans paying up at term
Jack P
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Post by batchoy on Sept 5, 2014 6:45:33 GMT
One of the problems that occurs when people talk about the London Property Market is that it is never clear what is meant by 'London', which is probably down to the fact that unless specified on a borough by borough basis the only other defined areas are 'The City of London' and 'Greater London' and even then in the case of the latter people tend think of it being represented by the area inside the M25 which is almost but not quite the case. Plus London is this amorphous lump that we can love to hate and blame for all our woes be they political or financial.
When the media are playing up steep property price rises in 'London' my view is that they are often only talking about the more desirable areas of the more desirable boroughs where purchases are done in cash for silly sums of money buy people who probably aren't going to live in the property more than a few days in the year rather than the greater part of the property market which involves normal people buying homes. Moving out to the boroughs where normal people live and where property purchases are done using mortgages not cash and whilst prices are high in terms of affordability they are not vastly dissimilar to the prices we see here in the Northern Home Counties nearly 30 miles away.
Any way coming back to the issue of the progressive move of P2P lending towards property, this is,was always going to be the case. Property is probably the largest asset people and businesses are going to own thus will always turn up as security when people want to borrow money whether it is just to back a loan or as the reason for the loan. In terms of security for a loan property is probably the most secure of all those available: we hopefully all know and many the hard way that un-backed PGs can prove to be worthless when it comes to the crunch, similarly with machinery and equipment where the book value can be vastly different to the value that can be realised when the items are disposed of (often little more than scrap). Then there is stock, firstly there is the question of whether or not the stock will be there when it is needed, then there is the issue how the stock is valued for the purposes of security compared with the value that can be realised when the stock is sold off, I hate to say it but watching day time TV can be a real eye opener particularly the programmes which follow the Del Boy's of this world as they go round auctions buying liquidated stock for a tiny fraction of its wholesale price let alone its retail price.
Since we are stuck with property it is really down to a personal assessment as to what one believes is the cause of high property prices, if and, or when one thinks there will be a correction and how big that correction will be if and, or when it occurs as to how big an LTV you are willing to accept.
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Post by davee39 on Sept 5, 2014 8:13:30 GMT
Lets define London as above, to include a fair size commuter belt
Lets agree that
House prices are un-affordable for many, including young professionals who might well have purchased 10 years ago
The selling off of council houses has pushed a new generation of tenants into private renting, often of dubious quality properties and subsidized by Housing Benefits - the winners being BTL Landlords.
More housing is needed
P2P property deals have tended to relate to higher value property development, with the honorable exception of 'The House Crowd' who have taken a unique but small scale position in semi social housing (Northern properties at < £100K.)
There is a demand among lenders for higher income products with security.
Now imagine we are in Birmingham in 1775. Here we see a group of people making contributions to enable them to purchase property. The organisation was called a Building Society, and it and many others operated in their members interests for hundreds of years, until the directors discovered Bankers Bonuses.
Today we have P2P. What we do not have is a political will or charitable organisation able to structure a fund raising entity to finance more affordable housing. Charities have issued 'mini bonds' for specific projects, my vision would be a harnessing of the crowd to raise substantial funding for a non profit organisation to finance, build, and let housing while paying a fair dividend (Say 5% over 10 years). In this I would invest.
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merlin
Minor shareholder in Assetz and many other companies.
Posts: 902
Likes: 302
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Post by merlin on Sept 5, 2014 9:16:15 GMT
One of the problems that occurs when people talk about the London Property Market is that it is never clear what is meant by 'London', which is probably down to the fact that unless specified on a borough by borough basis the only other defined areas are 'The City of London' and 'Greater London' and even then in the case of the latter people tend think of it being represented by the area inside the M25 which is almost but not quite the case. Plus London is this amorphous lump that we can love to hate and blame for all our woes be they political or financial. When the media are playing up steep property price rises in 'London' my view is that they are often only talking about the more desirable areas of the more desirable boroughs where purchases are done in cash for silly sums of money buy people who probably aren't going to live in the property more than a few days in the year rather than the greater part of the property market which involves normal people buying homes. Moving out to the boroughs where normal people live and where property purchases are done using mortgages not cash and whilst prices are high in terms of affordability they are not vastly dissimilar to the prices we see here in the Northern Home Counties nearly 30 miles away. Any way coming back to the issue of the progressive move of P2P lending towards property, this is,was always going to be the case. Property is probably the largest asset people and businesses are going to own thus will always turn up as security when people want to borrow money whether it is just to back a loan or as the reason for the loan. In terms of security for a loan property is probably the most secure of all those available: we hopefully all know and many the hard way that un-backed PGs can prove to be worthless when it comes to the crunch, similarly with machinery and equipment where the book value can be vastly different to the value that can be realised when the items are disposed of (often little more than scrap). Then there is stock, firstly there is the question of whether or not the stock will be there when it is needed, then there is the issue how the stock is valued for the purposes of security compared with the value that can be realised when the stock is sold off, I hate to say it but watching day time TV can be a real eye opener particularly the programmes which follow the Del Boy's of this world as they go round auctions buying liquidated stock for a tiny fraction of its wholesale price let alone its retail price. Since we are stuck with property it is really down to a personal assessment as to what one believes is the cause of high property prices, if and, or when one thinks there will be a correction and how big that correction will be if and, or when it occurs as to how big an LTV you are willing to accept. @batchboy a very good summation of what I think and what drove my recent actions in pruning my "overt" property investments. I also agree that ultimately property is usually the largest asset that most small to medium sized businesses hold and nearly always provides the best security for a loan. However there are other alternatives to property. A couple of years back I loaned a business £50k for new product development and in return took a charge over the intellectual property of the business. An independent valuation assessed the IP as more than double the figure loaned in a fire sale situation. Incidentally nowhere in that companies accounts was the value of their intellectual property even indicated prior to my granting them the loan.
The only further comment that I would make is that within P2P there seems to be a downward drift in the direction of interest offered in property loans. This is also coupled to a upward stretching of LTV with many now being offered at or around 80% which does not leave much room for manoeuvre if things go wrong.
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Post by batchoy on Sept 5, 2014 9:41:49 GMT
Lets agree that House prices are un-affordable for many, including young professionals who might well have purchased 10 years ago The selling off of council houses has pushed a new generation of tenants into private renting, often of dubious quality properties and subsidized by Housing Benefits - the winners being BTL Landlords. More housing is needed Whilst I agree with the first two, I don't necessarily agree with the third one, mainly because I do not accept the premise that is expounded by the government and others that sole driver for house price increases is demand and the lack of available property. My view is that house prices have been driven primarily by freely available cheap money (particularly in the BTL sector) and stoked by Estate Agents paid on percentage of the transaction value and particularly by those with in-house mortgage advisers. Clear evidence that there is not a lack of affordable housing in our area, Northern Home Counties commuter land, can be seen in property pages of our local papers. What there is locally, is a lack of affordable properties for sale, but turn on a few pages from the properties for sale pages and there is page after page of vacant properties to rent which were all predominately built as 'affordable homes' but which the first time they have come up for sale after the initial sale have been snapped up by BTL investors. On my 10 minute walk to the office I counted six two bedroom properties that are vacant and have To Let boards outside and some have been empty for over six months. So the right properties are there they are just under the wrong type of ownership. Whilst the FCA have started to make an effort in controlling lending by forcing the introduction of affordability checks on prospective borrowers which in theory should slow house price increases, these checks are lopsided and as a result in some respects are making the situation worse. I have friends whose children are continuously being out bid by BTL investors when they make offers on one and two bedroom starter homes, as it would appear that whilst buyers who wish to live in the property are being restricted in the amount they can borrow based on their income and deposit, BTL investors appear to still be able to borrow based on prospective rental income and with very little by way of deposit.
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Post by batchoy on Sept 5, 2014 10:23:00 GMT
.... A couple of years back I loaned a business £50k for new product development and in return took a charge over the intellectual property of the business. An independent valuation assessed the IP as more than double the figure loaned in a fire sale situation. Incidentally nowhere in that companies accounts was the value of their intellectual property even indicated prior to my granting them the loan. ..... I'm cautious to the extent that I am obverse to taking on IP as security. Having been involved remotely, indirectly and personally in several battles surrounding IP infringement my personal view is that the only protection offered for IP is a bigger bank balance and a bigger legal team than the people you are going up against and if you are going up against the Chinese you are basically in a no win situation even if you do have patents, registered design rights etc. to supposedly protect you.
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Post by chielamangus on Sept 5, 2014 10:28:13 GMT
Following on from my post that started this thread on 31st August I reworked my personal risk formula and got out my pruning knife. I chopped everything with an LTV of more than 70% outside London and 60% in the London area. Now I am sitting on a pile of cash and contemplating my navel. I have put some money back into high yielding stocks but fear I may have bought into the top of a market also probably overdue for a correction. Perhaps I should invest in classic cars or antiques, or even go and buy a new car? Well, Merlin, from what you have said previously you are getting on in years. You can't take it with you. Perhaps now is the time to do those things that you always promised yourself (or wished for) when younger. If the property market collapses, there will be a lot more than property which will become less valuable, so what's the point in worrying abut which one item of capital might escape the deluge?
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