Elephant & Castle, London REPAID

Yes, that article is from 2016 which was probably peak madness in the London property market.  Developments mentioned like 9 Elms were proper fast markets with people paying silly money to secure units.  2 bed flats were going for well over £1m in some areas.  This is a different area/price level.  If the buyer paid £795k then, yes I would say there is some premium/overpayment but at £700k valuation I would say not so much.  Just my opinion having bought quite a few new builds in the area (pre 2016 I might add).  I don't follow the market that closely now but I do monitor how much flats in the same blocks I own sell for - and prices have not fallen much at all.

Agree with your analysis on interest and time frames.  I think the desired exit is through high street mortgage.  The risk for us is the loan drags on and on and we lose out on interest I would say.  I see little chance of capital loss.  Receivers fees shouldn't be too much as it's a simple situation.

I actually had a phone call from FS yesterday where they explained the new ownership and that they are overhauling all procedures (they are calling investors for feedback).  This includes defaulting loans much sooner and not taking on such risky loans.  They say it will take some time to go through the historic loan book and resolve everything but I was encouraged.  This has given me sufficient confidence to invest in this loan (I haven't invested in a new loan for a while) but I understand why others wouldn't.

This is the first posting for months that has encouraged me to reconsider FS!  However one swallow does not make a summer.  I will sit on the sidelines for a while longer.  If/when I do re-enter it will be very selectively.  No boats! No wind farms! No second tranches!  no renewals! for starters.   The p to p world has changed.  lets hope FS is on message.

I tend to see that as the worrying bit, yes the asset looks like it is a reasonable risk. Which leaves the borrower as the obvious reason for such a high cost loan. My own preference would always be a loan where I can understand the thinking or reason for the loan. Due to a lack of any insight into this side of it, and having no great need to invest, why would I?

My thinking exactly.

The loans to avoid are those where there is a risk of a significant haircut or total wipe out...ie 2nd/3rd charge loans, very illiquid assets (specialist performance boats, run down castles, miniature train models, high risk dev loans etc).  I always avoided loans like this anyway but the loan in question is clearly defined, fairly liquid, easy to value and easy to understand.  Yes there is always a risk but I am happy to risk not getting all the interest if things drag on and even a tiny capital haircut in a disaster scenario.  There's a big difference between that and a big capital write off and I feel 11% interest more than compensates for that risk.  A well diversified portfolio of similar style loans would lead to a very decent return.  What I think would help on this loan is a bit more about the borrower...ie why couldn't they get a high street mortgage straight away?...if it's just a case of it taking too long and they need a short term bridge then stating that would really help.

I am reassured following my conversation with FS yesterday (around an hour on the phone).  They accept mistakes were made in the past and they are looking to deal with the existing late loans as quickly as possible.  They have hired quite a few new staff and a new head of property who has a lot of experience in this area. They are going through the list of overdue loans as quickly as they can which is why we are seeing a lot more updates and an increase in defaults.  I said there are some loans where they really need to draw a line in the sand and get some resolution one way or the other so people can just move on and they agree (but they stress it is taking some time).

They are looking to put in clearly defined procedures going forward where they have a set of rules that everyone understands (including investors) that are applied to loans that go overdue.  This will mean they are quicker to default loans.  They are also improving the information given on each loans.  They want it to be much more extensive.  They accept that communications have been poor with many updates merely winding up investors (ie saying funds expected next week for months on end). This is an area they are looking to improve on quickly and say we should see improvements within the next couple of months.  They say it is wrong that in the past they have said we will update by x date and then not done so and are addressing this.   They also accept it is unprofessional and sloppy to make so many spelling and grammatical errors in their updates and communications and will be tightening up significantly in this area.

They are also becoming much more selective on loans.  They will not be bringing such high risk offerings, but that may lead to lower interest rates (which is probably why this loan is 11%).  They are also considering widening the 1% limit on the SM and allowing trading beyond 30 days to go in a loan (perhaps by stopping sales at premiums beyond this date).  They are looking at the standard 6m maturities they currently have as they agree they are not suitable for many loans, in particular development loans.  If they expect a loan will take 18m to repay then the term will be 18m.

Finally they are going to overhaul the information on the website.  Explain their processes in more detail and how the loan process works.  They are also going to spell out the risks more clearly, especially for development loans.

Of course the proof is in the pudding but it does sound like they are finally starting to address the issues and move in a direction that should bring much more stability to the platform.

Right now they're pretty much the same thing though.

You can't buy any old crappy high risk loan now and sell for a premium on the SM. In fact loans like this you can't even sell for a 1% discount.

It's only the decent, low risk loans that you can easily flip at the moment and not only are they like rocking horse sh1t at the moment, they are also very hard to get into (as most people just roll their investments).

The risk of the loans matters not only to this strategy but also to the viability of the platform

Nothing revelatory here whatsoever, in fact it's all very basic, common business sense which should have been practised religiously since FS' inception.

If this new "way forward" is now considered "the way to go", tells you all you need to know about FS' past management and attitudes.

Double Yawn, we've heard it all before, let's see how things pan out over the coming months if the Platform is to be run by trustworthy professionals, instead of rank, questionable amateurs.