The next update has arrived:
October 2024 Quarterly Update for Retail Investors
Good Afternoon,
We are writing to you with our October 2024 quarterly update on the Retail Investment Platform and your loans.
1. Withdrawing Cash From The Platform
We are pleased to confirm that we continue to deliver distributions from the Access Accounts to investors’ Cash Accounts, with Access Account cash distributions now up to £47m, including £9m distributed during the quarter up to 1/10/2024.
Access Account capital distributions will continue to be made pro-rata across all Access Account investors, with funds going back to investors’ Cash Accounts.
As no new loan investments are coming onto the platform, we would ask that all investors take steps to withdraw all funds held in their Cash Accounts in a timely manner to maximise investment returns elsewhere. We cannot make any payments automatically, at present, so please request the withdrawal on your investment dashboard as usual.
For Standard Accounts this involves making a withdrawal request to your verified bank account in the normal way.
For IFISA accounts this will involve creating an ISA Transfer Out request, via your chosen new ISA Manager, so that you can move funds to another ISA provider and keep funds within the ISA wrapper – please see the IFISA Banner on your Investor Dashboard for the unique IFISA Reference to quote on any Transfer Out Form you complete with your new ISA Manager and also the IFISA FAQ Section on the Investor Platform for further information.
If you do not wish to keep funds in the ISA wrapper, then you are free to withdraw them to your verified bank account but please consider whether that would result in the loss of tax-free status. Please note that Assetz Capital cannot provide any form of tax advice so if you are uncertain of the tax treatment of your IFISA you should seek advice from a qualified professional.
2. Loan Portfolio Update
Since commencement of the Retail Loan Book run off, in the 22 month period mid-December 2022 to late-October 2024, 151 loans with a value of c.£70.6 million have been fully repaid, along with plots sales and other partial repayments of c.£8.2 million making a total of c.£78.8 million. That’s a further 22 loans and approaching c.£7.8million more repaid over the past quarter.
The last quarter has seen a further reduction to the development loan portfolio size. The level of undrawn facilities available to meet future tranche draw down requests has now reduced to circa £500k, with cash funds already held to meet these commitments.
Housebuilding remains a challenging sector, with local councils slow responses in issuing decisions and discharging planning conditions. Whilst construction costs have stabilised, labour shortages continue to be a feature and the unusually inclement weather has caused issues with groundworks and utility providers leading to a delay in connections to mains, electric ,gas and drainage which have impacted build programmes.
The supply pipeline of new-build properties is still restricted, leading to upward price pressure continuing, and the new government is under pressure to tackle the housing crisis. New supply under these policies would be expected to take quite some time to be delivered and in due course create any resulting reduction in those upward price pressures.
House price growth now stands at 3.2% (Nationwide) annualised in Quarter 3 2024. The historically busy autumn housing market has started with stronger buyer demand and supply than the same time last year following the Bank of England base rate reduction in August and the certainty of a new government. Residential sales are mostly holding up well, but are taking longer to complete. There is a need to price realistically in order to get sales completed.
Most development loans carry a minimum of 10% contingency which is helping to see us through but we continue to see many extension requests and in some cases requests to fund cost overruns. In respect of the latter our usual resolution is to seek additional borrower cash or recycle sales proceeds but in all such cases Lenders will be approached to vote.
In summary, the development portfolio is reducing as schemes reach completion and sales flow through. The market is challenging, and enhanced monitoring is undertaken where appropriate. In relation to non-development loans, such as commercial mortgages, the number of loans has continued to reduce through redemptions. In non-defaulted loans, the majority of Borrowers continue to make their monthly loan payments on time, but there is a minority of late payers and arrears which is being managed more closely. Trading conditions still remain difficult for many Borrowers. As regards loans approaching expiry, refinance proposals seem to be taking longer to complete and we continue to advise borrowers to seek refinance proposals well ahead of the loan expiry date. Loan extension requests are dealt with on a case by case basis with appropriate terms and conditions applied, including an increase in interest rate.
The breakdown of the remaining portfolio, as at late-October 2024, is as follows:
*Credit Event, Monitoring loans that are subject to a Credit Event will show on the platform as Trading Suspended. Value £ represents the outstanding loan capital.
74 of the loans are marked as Default. These include:
loans that are marked as default but not in an insolvency process. All or some loan capital is expected to be recovered, subject to the circumstances of individual loans.
loans that are marked as default and are in an ongoing insolvency process to sell the primary property security for the loan. Some loan capital is expected to be recovered, subject to the circumstances of individual loans.
loans that are in a secondary status (after sale of the primary property security) involving pursuing guarantors, either before or in litigation, or awaiting any dividend outcomes from bankruptcies/liquidations. Some loan capital may be recovered, subject to the circumstances of individual loans.
37 of these loans, as listed on the Irrecoverable Loan tab on the Lenders dashboard, are considered as irrecoverable following the end of past recovery actions over the last 10 years or so. No further loan capital will be recovered beyond that already distributed.
As regards a loan marked Default, if all the outstanding loan capital is not repaid there would be no payment towards outstanding interest.
Please remember that as the loan book repays to you there will be an increasing percentage proportion of loans that are in default/recovery out of the remaining loans in the book. Also please remember that at the point of the last loan not in recovery being paid back, 100% of your investment will be made up of loans in default/recovery and/or irrecoverable, with further redemptions being dependent on the success of any ongoing recovery process. Whilst we expect that to be a small proportion of the original loan book. This is the nature of running off a loan book.
3. AA Lender Voting
Since the closure of the retail platform to new investment we have made a number of changes to the way the platform operates in the run-off environment in order to maintain the key focus on maximising investor returns whilst balancing that with also maximising the speed of returning your capital. This will be a careful balance of these two priorities as we would not want to incur costs for any extended recovery processes that wouldn’t be likely to produce a significantly better outcome at the end of that often costly and lengthy process.
We have decided that this focus means that we wish to start involving Access Account investors in Lender Votes – and during the last quarter we launched our first lender vote with Access Account investors included. Lender votes are used in situations where a loan is outside normal terms and a significant decision needs to be made that could affect the outcome for all lenders.
In the past this was inconsistent with a hands-off investment account but we are now starting to invite Access Account investors to vote now as well as manual loan investors. This is because we are seeing some important decisions on loans coming up that could affect recovery levels, as well as the speed of recovery of loan sums. We are also seeing risks of substantial recovery costs being incurred that would reduce loan repayments to investors if it did not produce a better outcome following that extra work. This type of go/no-go decision is typical of the balancing of the two priorities referred to above and involving as many investors as possible now makes sense in the run-off phase whist we return your investments.
We are aware of the large number of Access Account investors and to avoid unnecessary administrative burdens for some investors, we have identified a minimum threshold of the level of Access Account investment in a loan which is subject to a vote of £1. So Access Account investors with holdings in a loan of £1 or more will be invited to cast a vote whereas Access Account investors with holdings in a loan below £1 will not. This is because we have determined that as the vote is weighted by the value of the loan holding, this would not affect the outcome of the vote.
Lender Voting FAQ
Q: I cannot locate the Lender Vote
A: You must log in and press “Marketplace” at the top of the Dashboard. Once there you can press “your votes”. All the pending votes and information will be provided there.
Q: Can I opt out of voting?
A: Voting is not mandatory. You can choose to vote or not vote at your own discretion.
Q: Can I change my vote?
A: Yes, simply go back to the loan vote page and tick the other available option. You will be able to change your vote up until the vote closes on the date stated at the bottom of the vote page.
4. PF Funds Operational Update
As noted above, there is a careful balance to be struck between maximizing investor returns and the speed of returning your capital which is particularly relevant when considering recovery action on loans. Whilst some potential recovery action will be ruled out as the costs involved will outweigh the returns to investors, there may be some recovery actions which may substantially improve the outcome for all investors, and the question remains of how that action will be paid for.
We will continue to consider whether it is appropriate to retain funds from the proceeds of primary security, but this may not be sufficient in all relevant cases. Under the terms of our Provision Fund arrangements it is allowed that, should the platform move into run-off, the Provision Funds could provide funding for recovery action if there is a reasonable prospect of investor outcomes being improved. The Provision Funds would then recover costs funded from the recoveries made as a result of the actions, before distributions were made to investors. By maximizing recovery levels, losses ultimately claimed against the Provision Funds are minimised.
We now plan to activate this clause within the Provision Fund arrangements to ensure that the best available recovery actions remain available to investors as we continue with the run-off of the retail platform.
As a result of implementing these changes to the operation of the Provisions Funds, we will also be deferring making any further discretionary payout decisions until the end of the run-off. This is so that the PF cash balances can be maintained through the run-off period to allow funding for recovery action.
5. Lender Fees
The ceasing of new Retail Lending meant a significant drop in our income and meant that we had overheads that were larger than was supported by ongoing income. Since we closed the Platform to new investment on the 15th of December 2022, we have achieved a substantial reduction in the costs associated with that part of our business in order to keep the lender fee to the lowest possible level. We are fully committed to keeping the lender fee as low as possible.
We have reduced the team size to reflect the much-reduced operational size of the Retail Investment part of the business following the closing to new Retail Loan investment. This is both possible and necessary as the business is now focusing on origination of much larger loans and that has substantial efficiencies, but also means we no longer have a business need for such a large team that was built up over many years.
The plan that we outlined in our previous update was as follows:
For the period of June-September 2023 – 6.25% pa of performing loans
October 2023 to December 2024 - 0.9% pa of performing loans
Post December 2024 no fee expected
(This equates to an average fee level of 3.52% for the first 12 months and a now much lower 5-year average fee of 0.88% pa)
We are pleased to confirm that this lender fee plan is unchanged as things stand today. We expect to still be able to cease the Lender Fee from the end of this year, as detailed above. No further change is presently expected to that fee, provided that the business has no new costs or liabilities going forwards and our plans continue to deliver as expected.
6. IFISA Transfer Out Fee
Since the closure of the Retail Investor Platform, in December 2022, we have seen a continued rise in the number of IFISA Transfer Out Requests.
Initially the increase was relatively moderate, rising from an average of approximately 60 per month over the 3 months immediately prior to the Retail Platform Closure to an average of approximately 170 per month over the 3 months immediately after.
Having continued to monitor ISA Transfers Out, we have seen them continue to rise to a level of approximately 400 per month and they show no signs of reducing. Given this sustained increase we are now, unfortunately, having to introduce an IFISA Transfer Out Fee so that the costs of the work involved can be sustainably financed.
Taking into account our responsibilities to treat customers fairly, we considered what mechanism would be fairest to deploy and, as only a third of all investors (approximately 6,000) have an IFISA Account, rather than raising the Platform Lender Fee slightly, which would have meant the costs were borne by all investors, it was considered fairer to apply a specific, quantifiable charge to each individual Transfer Out Transaction.
We have reviewed the costs associated with each Transfer Out process and have determined that a Fee of £35 per Transfer Out will be sufficient to pay for third-party costs and for the work involved.
Section 7: Transfers Out, of the ISA Terms & Conditions that you agreed to when you opened your ISA Account state…
7.3 There is currently no Fee charged for this service, but we reserve the right to do so in future based on the costs related to providing the service. Any future changes will be reflected within an update to these Terms & Conditions as required.
You will be issued with an updated set of Terms & Conditions and the platform version will also be updated to reflect the change closer to the delivery date.
As per our main Platform Terms & Conditions we provided a minimum of 30 days’ notice of the change in the January 2024 Update Mailer and now expect the Fee to go live, once the technical work required to implement it is completed, in Quarter 1 2025 at the earliest.
This means that IFISA transfers out will continue to be free for the time being.
7. Using the “Flexible” Features of your IFISA to keep Transfers Out to a Minimum.
Cash funds held in your IFISA Cash Account can be withdrawn from the platform, but in doing so they would step out of your IFISA Tax Free allowance.
The AC IFISA is “flexible” which means that Cash funds withdrawn are able to be replaced back into the IFISA within the same Tax Year. In doing so they would step back into the Tax Free allowance relevant to that IFISA.
This feature would allow Cash funds, that are not earning any interest, to be moved temporarily into an interest-bearing environment outside of the AC Platform. They could then be replaced back into the AC IFISA, within the same Tax Year, so that a Transfer Out to another ISA provider could then be performed, which would allow the Tax Free status of the funds to be maintained.
By utilising this flexible feature you are able to perform fewer larger Transfers Out instead of multiple smaller ones. This should help to keep any Fees associated with IFISA Transfers Out to a minimum.
Please note that Assetz Capital cannot provide any form of tax advice so the statements above are for information purposes only based on our current understanding of IFISA rules and do not constitute advice or a recommendation. If you are uncertain of the tax treatment of your IFISA you should seek advice from a qualified professional.
Thank you for being a customer of Assetz Capital. Some of you have been with us for over ten years and it is appreciated.
If you have any questions or queries please contact our Customer Service Team, via Live Chat or email at enquiries@assetzcapital.co.uk
The blog linked to our March 2024 Update should answer most other questions that you may have.
Please note that Assetz SME Capital will continue to manage any complaints in the same way as it does at present. Our Complaints page may be found here.
Kind Regards,
Stuart Law
CEO & Co-Founder of Assetz Capital Ltd.
Head Office
Assetz Capital, Assetz House, Manchester Green, 335 Styal Road, Manchester, M22 5LW
Contact
Via live chat or email enquiries@assetzcapital.co.uk
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Assetz SME Capital Limited is a company registered in England and Wales with company number 08007287. Assetz SME Capital Ltd is authorised and regulated by the Financial Conduct Authority (Reg No: 724996). ’Assetz Capital’ is a trading name of Assetz SME Capital Ltd. Assetz SME Capital is registered with the Office of the Information Commissioner (Reg No: Z3338899) for data protection purposes. Email disclaimer
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