P2P Lending and the Progressive Move Towards Property

If affordability is difficult now when the base rate is 0.5%, what will happen in a few years if the base rate goes up to 3-5%?  IMHO, that will be the trigger for the correction or bubble burst, depending on how high rates go along with what proportion of loans are either variable-rate or short-term fix.  But it's not just individuals who would be affected.  BtL landlords could find their incomings don't cover their outgoings any more, and businesses could be affected similarly.

I would think that an LTV of no more than 70% should be enough to survive a correction with only small losses -- especially if interest is being paid monthly rather than being rolled up.  60% would be better, of course.

Hello

I have only just found this very interesting thread (that will teach me to linger too long in the FC bulletin folder!). In the hope that readers are still following this old thread, I would like to add the following thoughts:

Re: When will the next property market crash occur:
I am a semi-retired Chartered Surveyor who is often pulled out of retirement to plug a labour gap, typically when residential mortgage valuation survey work (MV&S) goes through the roof. e.g. I was dragged out from cosy retirement in October 2006 and worked flat out until October 2008 doing MV&S work, at which point the work completely dried up (for obvious reasons).

I was again pulled out of retirement again in mid 2013 and I will let you adduce from this what might be around the corner (say in mid 2015??). My Chartered Surveyor Journal is currently full of jobs for MV&S workers. 

I fully appreciate and see that the "London effect" is spreading outwards to the provinces. I work in the South Midlands/North Bucks areas (i.e. Northampton/Milton Keynes), where property prices have now recovered to pre 2008 values and in some of the better areas are even 10% above this level. Estate agents tell me that they cannot find enough properties to satisfy current demand, hence the rapid rise in recent agreed sale prices.

That said, and on the other hand from our viewpoint (as P2P/P2B lenders), the 2008 property crash occurred on the back of an untenable lending regime coupled  with the exotics (non-vanilla) CDO scandal.  e.g. Northern Rock in 2008 were offering 110% LTV mortgages (and other more responsible lenders weren't far behind offering 100% LTV mortgages). Today the LTV is a much more conservative figure, typically 70% - so surely this will help us (as asset backed lenders) to weather say a 30% crash in the market and hopefully still come with most of our capital? Also it is well known that annual new builds are consistently falling significantly short of targets set by CG and LPAs, which is increasing demand on the existing housing stock.

What worries me however is that whilst AC and SS LTVs are based on current values of the assets (and so are more resilient), the LTVs quoted by FC are generally based on final Gross Development Value (GDV) i.e. after completion of the construction work - which can be pie in the skyish an dless resilient, eg. what if the developer runs out of money (=unforeseen construction costs) or goes bust (post crash), leaving a building site worth probably less than the original value? .

Unless anyone out there has a rationale to the opposite, on the basis that a correction is due sooner rather than later, I will stop buying and sell all my FC asset-backed holdings.

I hasten to add that this is not a panic measure, but just a balanced decision based on my personal view of current market direction prompted by this thread. If I am over-reacting, I would appreciate any feedback as to why I should continue to hold my FC asset-backed investments.

Drawing in thoughts from the Scottish Independence thread, a 'Yes' vote in Scotland will probably leave us with a Tory government and potentially very right wing, if UKIP are seen as the only viable alternative, parliament for a considerable length of time. With the next property market crash likely to occur during said period it is not then inconceivable that without the necessity to woo voters the government would allow the property market to fully correct itself resulting in significant falls in value, large amounts of negative equity and the potential decimation of the BTL sector. 

Whilst it's true that the left will find life a LOT harder without Scotland, I suspect it'll balance itself out fairly naturally.

Have a read of this :-
www.bbc.co.uk/news/uk-politics-27129813

in particular, the section referring to historic elections, just below the photo of Maggie :-
"Analysis shows that most general election results would have been the same, albeit with changed majorities. In recent times, Margaret Thatcher's Conservatives would have enjoyed a massive 174-seat majority in 1983, bigger even than the 144-seat majority they achieved. In 1992, Tory John Major would have had a 71-seat majority, as opposed to the 21-seat majority which occurred. And, without Scotland, Tony Blair's Labour majority would have been cut from 179 to 137 seats in 1997, from 167 to 127 seats in 2001, and from 66 to 43 seats in 2005."

In 2010, Cameron would have had a 21 seat majority, so no coalition - but that presupposes everything remained the same in terms of tactical voting.

I suspect that, in the absence of any kind of realistic left opposition, even one as "strong" as the current Labour party <suppresses laughter>, the Tories would fragment. There'd be a soft-right and a harder, more Euro-sceptic right closer to the 'kippers. Sort of half-way between the current position and the US spectrum. But, in practice, I suspect it'd kick the left up the chuff, and a more effective and electable Labour party would emerge in reasonably short order. I suspect that the LibDems would dissolve completely, with the soft-right taking some, and the left taking others. Or maybe they'd also take the kick and emerge as electable? Without being the whipping-boys of the coalition, they wouldn't have their current toxicity.

Well, no, because the discussion isn't (currently) about the West Lothian question as applied to Wales (can we call it the "Brecknockshire question"? Just... because.)

Ulster's 18 MPs aren't quite so easy to bring in to the discussion, because the "usual suspect" parties don't cross the water, but when it comes to how they'd vote on English matters, the same theory really has to apply. But that's really a whole separate can of constitutional worms.

Let's take it as a given that most property in the south of England is overpriced.

What I don't quite follow though is why an unsecured FC (for example) loan to a small business is somehow less vulnerable to default than a secured FC property loan.

Many PGs are linked to private homes I think.

Surely a serious correction to house prices would have a big impact on the economy in general.

I'm not a financial specialist either but as i see it if there's a property crash then in one fell swoop *all* the property bridging loans will lose the headline crash discount eg 20% - but actually as we saw in the Spanish crash it isn't really just a discount it is a total inability to sell at any price. So bridging loans would need to be serially renewed with serious affordability questions for the borrower.

Now unsecured FC stuff - SMEs making widgets etc - sure they'd have a more difficult market to sell into but a lot of them will still be making and selling widgets so able to service their loan.

Isn't this the argument Assetz used to justify Handbag Man @9% secured on revenue not assets?

So for me a mixture of property and unsecured loans

Jack Pease