mikes1531
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Post by mikes1531 on Sept 22, 2014 15:11:22 GMT
... 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% ... The impact of such a price crash depends an awful lot on whether the PBL is a first charge or a second charge. If it's a first charge at 80% LTV and there's a 30% drop in the sale price compared to the valuation, then the lenders recover 7/8ths of their capital. If the same thing happens to prices but there's a first charge of 60% LTV and the PBL is a second charge to bring the LTV up to 80%, then the result is very different. In that case, the first charge holder gets all their capital (and interest) and the second charge holders gets half their capital back -- if they're lucky. If the market freezes up entirely, and it takes a long time to sell, or more severe discounts are required in order to entice a buyer, then the second charge holders end up even worse off. Having thought about this, from here forward I'm going to look a lot harder at second charge PBLs before investing.
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Post by andrewholgate on Sept 23, 2014 13:44:38 GMT
Interesting debate, and obviously one that I have an interest in.
The LTV on most of our loans is under 70 per cent. If UK property was to lose 30-50 per cent of its value then you're looking at a much more significant problem and one that no-one - not P2P lenders, not banks and not the Government - will trade through unscathed. You can be sure that some widget makers will feel the pinch too.
If you're expecting a more significant crash than that then you should arguably be investing in gold/a bunker and tinned food, not financial products
Another thing to bear in mind: we take tangible security on all loans, but that's never the only security we take. This is generally accompanied by personal guarantees, debentures and so on. We don't think of tangible security as a replacement for solid credit checking and other, non-tangible security - it's an extra layer a way of strengthening our (and our lenders') position.
On behalf of Andrew Holgate
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 23, 2014 14:23:01 GMT
Just had an email to say that Funding Knight are joining the Property Bridging Loan party.
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Post by chris on Sept 23, 2014 14:46:23 GMT
Just had an email to say that Funding Knight are joining the Property Bridging Loan party. Imitation, flattery, an' all that. Guess we're going to have to move the game on a little bit 
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Post by davee39 on Sept 23, 2014 14:50:48 GMT
Just had an email to say that Funding Knight are joining the Property Bridging Loan party bubble
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pikestaff
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Post by pikestaff on Sept 25, 2014 16:33:41 GMT
Interesting debate, and obviously one that I have an interest in. The LTV on most of our loans is under 70 per cent. If UK property was to lose 30-50 per cent of its value then you're looking at a much more significant problem and one that no-one - not P2P lenders, not banks and not the Government - will trade through unscathed. You can be sure that some widget makers will feel the pinch too. If you're expecting a more significant crash than that then you should arguably be investing in gold/a bunker and tinned food, not financial products Another thing to bear in mind: we take tangible security on all loans, but that's never the only security we take. This is generally accompanied by personal guarantees, debentures and so on. We don't think of tangible security as a replacement for solid credit checking and other, non-tangible security - it's an extra layer a way of strengthening our (and our lenders') position. On behalf of Andrew Holgate Based on this afternoon's email updates, there are a few cases where this could be put to the test very soon...
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Post by andrewholgate on Sept 26, 2014 12:51:42 GMT
I'm confident of good outcomes.
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mikes1531
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Post by mikes1531 on Sept 26, 2014 14:15:04 GMT
I'm confident of good outcomes. I'm sure he is -- he's the MD and his business and his job depend on it -- he has to be. I'll wait for the results. The one that could be most 'interesting' is the one where AC are holding a second charge. The first charge is for 71% LTV, and the AC second charge brings the LTV up to 89%. That doesn't leave a lot of room for discounting the price to produce a prompt sale and still having enough proceeds to pay lenders their accrued interest after all the costs of the default administration are paid. We'll see how it all works out. It could be a defining moment in AC's development.
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Liz
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Post by Liz on Sept 27, 2014 22:44:03 GMT
I have seen 2nd charges screwed on TC as the banks fire sale the property or market it poorly. Why would they care about a p2p creditor? LTV of 89% and 2nd charge is crazy high risk. New SS loans are 65%, seems prudent.
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mikes1531
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Post by mikes1531 on Sept 28, 2014 1:48:42 GMT
I have seen 2nd charges screwed on TC as the banks fire sale the property or market it poorly. Why would they care about a p2p creditor? LTV of 89% and 2nd charge is crazy high risk. New SS loans are 65%, seems prudent. I guess that's the reason some second charge holders will commit themselves to making the payments on the first charge so that they can be in complete control of the sale/auction process.
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Post by batchoy on Oct 2, 2014 10:16:36 GMT
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shimself
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Post by shimself on Oct 2, 2014 19:20:09 GMT
I have seen 2nd charges screwed on TC as the banks fire sale the property or market it poorly. Why would they care about a p2p creditor? LTV of 89% and 2nd charge is crazy high risk. New SS loans are 65%, seems prudent. You need to read SS's valuations with care; the LTVs are not always based on the property as is, they can be based on the value after development.
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Post by Deleted on Oct 21, 2014 21:22:25 GMT
@original Post
Sorry to wade in late on this. I haven't read the full discussion, so very sorry if this is repetitive or just plain irrelevant. Just ignore if so. Just wanted to weigh in a little bit on the whole "is real estate in a bubble and if so why and how" question.
In a nutshell, a house is a highly durable consumers' good. Consumers' goods are priced subjectively: if you really REALLY want that Wet Wet Wet 12'' Picture Disk on eBay you might pay a thousand pounds for it. Someone else would baulk at the 29p postage and 1p starting price.
Houses are absolutely no different whatsoever. Their value doesn't depend on the man hours expended building them, the raw materials used or the price of fish.
Their value depends on what consumers are willing to pay for them. If you listed your house for auction starting at £5, I'd be sure to bid £100 for it. If someone else joined in, I'd keep upping my bid to maybe £50k or so but after that I'd start to steadily lose interest because for me it'd just be an investment, probably to flip as fast as possible.
Another bidder might genuinely want to live somewhere. To them, your house would have much more value than £50k, which is what: three years' wages probably? (I don't know: for me it's about seven right now!)
Living in someone's spare room is worse than having to pay out three years' wages so that person might offer a lot more.
But that's all there is to it.
What we see in London is homes priced at maybe 20 years' salary. Now that's a big ask. Why would anyone do it? Well it all depends on the interest they're paying: if they're paying 20% interest then no way will they commit to a 20 year contract like that and bankrupt themselves in the process. At 8% they're still going to want to haggle, but at 0.99% fixed for three years then variable in an environment where a base rate above 2% is more or less impossible, who knows?
Throw a bit of Help To Buy into the mix, a few shortages and subsidies, some zoning problems and uncertainty about the future and who knows what emerges?
Probably the main factor right now is the false belief that house prices can only go up, and usually by large amounts, always beating price inflation and wage growth and often hitting +10% a year, compounded of course.
With credit this cheap and expectations this high, of course more people will buy than would otherwise be the case, and that of course means there are more bidders for every house. With the supply restricted by uncertainty among long-term developers (as well as their own expectation of land value rising year on year), this becomes a perfect storm of two-way reinforcing price increases.
The irony is the behaviour of some land owners, waiting to build until their land/house is worth more, is what Central Planners fear from price deflation!!!!!
But it's not price deflation that causes that behaviour: people buy phones and holidays on their credit cards after all so -2% price inflation isn't going to lead them to wait a year to buy those things....... but a promise of future inflation, that really can cause those behaviours.
As Mises would no doubt point out, human behaviour is subjective and individual. We can't be aggregated into an amorphous mass and then shaped by Central Planners to their whim.
Conclusion regarding timing: no clue, it's down to individual human action.
Caveat: the cost of raw materials and man hours will of course influence the behaviour of the BUILDERS LOLOLOL, which is why rent control never works.
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