webwiz
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Post by webwiz on Mar 21, 2015 9:11:38 GMT
Why would a borrower pay well in excess of 12%? Can't he get a cheaper loan from traditional sources if his security is good? Do we (via SS) offer higher LTVs - and therefore take more risk - than banks? Or are we quicker to make a decision - and therefore possibly take on a different sort of risk?I find it hard to believe that we are competitive on interest rates.
Is there anyone with experience of property development finance who can give a reason?
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Liz
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Post by Liz on Mar 21, 2015 10:02:45 GMT
The borrower will be paying excess of 18%! Clearly they can't get traditional funding. There must be a lot of money to be made and they can afford it, or they are desperate.
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bugs4me
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Post by bugs4me on Mar 21, 2015 10:17:07 GMT
Why would a borrower pay well in excess of 12%? Can't he get a cheaper loan from traditional sources if his security is good? Do we (via SS) offer higher LTVs - and therefore take more risk - than banks? Or are we quicker to make a decision - and therefore possibly take on a different sort of risk?I find it hard to believe that we are competitive on interest rates. Is there anyone with experience of property development finance who can give a reason? You'll probably get a zillion and one bits of feedback on this but short term loans from traditional lenders are usually not all their cracked up to be. A while back a business acquaintance of mine was offered a secured loan from his bank at something in the region of 4-5% over BoE base rate. So far so good. His accountant then looked at the small print and there was (from memory) a documentation fee, an arrangement fee, a monthly monitoring fee and a (I presume early) settlement fee. All in all the rate for the first 12 months was in the region of 13-14% and the head office computer still had to say yes. No doubt that would have delayed things for a few more weeks so I can understand why folks with assets would prefer a simpler, albeit possibly slightly not as cost effective, alternative. So whilst P2x may not be as cost effective on interest rates, I do feel that simplicity may often be the winner. However P2x is still in the tiny minority camp compared to traditional lenders.
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Post by davee39 on Mar 21, 2015 11:30:01 GMT
Perhaps they think the lender will be a soft touch if the loan defaults.
FC comes to mind, but other lenders have had their moments.
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Post by Deleted on Apr 1, 2015 18:26:22 GMT
Why would a borrower pay well in excess of 12%? Can't he get a cheaper loan from traditional sources if his security is good? Do we (via SS) offer higher LTVs - and therefore take more risk - than banks? Or are we quicker to make a decision - and therefore possibly take on a different sort of risk?I find it hard to believe that we are competitive on interest rates. Is there anyone with experience of property development finance who can give a reason? It's a very good question. I expect everything other people have said is true. In essence, it's a supply side phenomenon: we're here with new money to be had so of course there will be people who, if asked by SS, will be willing to take the loans. The proximal cause is our presence and the ultimate cause is the artificially suppressed interest rate which prevents us from obtaining inflation protection (let alone growth) from fixed term cash deposit accounts. The whole situation is very new. As recently as 2011, it was possible to get 4% returns from fixed term cash deposit bonds from a high street bank or other institution. That's no longer the case. So long as the value of the properties remains fairly stable, our risk is under control. A few defaults can be staved off by provision funds and so on. The problem comes when the general price of property drops to the point at which the borrowers have nothing to lose by defaulting and this brings down the platform. While it works, this is a fantastic opportunity but, like so much of the economy, it depends (in the strong sense of the word) on near-zero interest rates. You're all correct though to note that by definition the loans we're supporting are loans which were not previously supported by mainstream lenders. That certainly gives pause for thought. It might be a slight exaggeration (but not much more than that) to say we'll be the first lenders to go down in the next recession. The last one was seven years ago. The one before that was 7-8 years prior, and so on. The key metric is 1-LTV: that's the percent fall at which a loan equals the value of the asset backing it. So for a property taking on a 70%LTV loan, it requires a 30% drop in the price of the asset to make the loan and the asset equally valued. That's generally speaking the tipping point at which people in default will cut their losses, because it means they're losing no more than that which they were proposing to pay back.
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mikes1531
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Post by mikes1531 on Apr 2, 2015 2:46:22 GMT
The key metric is 1-LTV: that's the percent fall at which a loan equals the value of the asset backing it. So for a property taking on a 70%LTV loan, it requires a 30% drop in the price of the asset to make the loan and the asset equally valued. That's generally speaking the tipping point at which people in default will cut their losses, because it means they're losing no more than that which they were proposing to pay back. This is a reasonable metric to look at, but IMHO it's wildly optimistic for the simple reason that there's a huge difference between the 'normal' value of a property and the amount of proceeds that can be expected in a hurried sale. When valuers are asked to provide both a normal (180-day sale) value and a 'quick' (90-day) sale value, the discount they think would be required to shift a property quickly is quite revealing. In some cases, particularly with properties that are unique -- as opposed to ordinary -- the discount required would be large enough that the proceeds from a quick sale might not be enough to cover the loan capital, accrued interest, and costs/fees of sales and receivers, for a 70% LTV loan. And that's without any general price decrease having occurred!
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ramblin rose
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“Some people grumble that roses have thorns; I am grateful that thorns have roses.” — Alphonse Karr
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Post by ramblin rose on Apr 7, 2015 12:44:50 GMT
Why would a borrower pay well in excess of 12%? Can't he get a cheaper loan from traditional sources if his security is good? Do we (via SS) offer higher LTVs - and therefore take more risk - than banks? Or are we quicker to make a decision - and therefore possibly take on a different sort of risk?I find it hard to believe that we are competitive on interest rates. Is there anyone with experience of property development finance who can give a reason? The rates are easily commensurate with more traditional bridging finance which has typically been between 1.5% and 3% per month for the borrower. Admittedly it's a couple of years since I looked into it myself, and somebody elsewhere on the forum reported seeing lower rates available nowadays, but it's not way out of whack. Most traditional sources of funding require steady and reliable income as a means of repayment, even with security; anybody unable to demonstrate that will find themselves unable to borrow against property from a traditional source. That's where our p2p platforms come in - they may be willing and able to consider forms of income that a traditional lender's computer will not. If a business expects to make in excess of what our platforms charge them, then it's worth while them paying if they otherwise couldn't fund their venture.
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bugs4me
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Post by bugs4me on Apr 8, 2015 21:37:58 GMT
Why would a borrower pay well in excess of 12%? Can't he get a cheaper loan from traditional sources if his security is good? Do we (via SS) offer higher LTVs - and therefore take more risk - than banks? Or are we quicker to make a decision - and therefore possibly take on a different sort of risk?I find it hard to believe that we are competitive on interest rates. Is there anyone with experience of property development finance who can give a reason? The rates are easily commensurate with more traditional bridging finance which has typically been between 1.5% and 3% per month for the borrower. Admittedly it's a couple of years since I looked into it myself, and somebody elsewhere on the forum reported seeing lower rates available nowadays, but it's not way out of whack. Most traditional sources of funding require steady and reliable income as a means of repayment, even with security; anybody unable to demonstrate that will find themselves unable to borrow against property from a traditional source. That's where our p2p platforms come in - they may be willing and able to consider forms of income that a traditional lender's computer will not. If a business expects to make in excess of what our platforms charge them, then it's worth while them paying if they otherwise couldn't fund their venture. My sources inform me that your assumptions rose are not that far off the mark and if anything, there has been a tightening up in the background by the traditional lending sources who were badly burned a few years back. Most of that was caused by their own over optimistic greed - chasing bonuses here and there perhaps but nonetheless the computer is still saying no. Many are not prepared to roll over interest payments until sale and therefore in addition to the security, irrespective as to the LTV, they require those interest repayments monthly as you have correctly pointed out. In addition, there are reams and reams of paperwork involved, normally chargeable to the client before the computer still says no. It's not as straightforward as the advertising would have everyone believe.
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Post by Deleted on Apr 9, 2015 4:11:49 GMT
That's P2P doing what it says on the tin: increasing access to credit by cutting out the bureaucracy and linking lenders to borrowers.
Of course the FCA is busy making inroads into that until eventually P2P too will be just as bureaucratic, at which point someone will come up with yet another way to keep one step ahead of the State.......
The real question is whether it's desirable to expand the availability of credit.
It certainly seems to me that it's desirable to circumvent the waste and destructiveness that is government, but that's only part of the P2P raison d'etre: the main part is to capture those borrowers who are being outright turned away by the bureaucracy. I'm not at all sure that that is desirable at all.
Why do people get into P2P lending in the first place?
Well part of it (certainly this was true for me) is the excitement of just that: to circumvent the inadequacies and stupidities of government and create a more honest and direct relationship between the parties, instead of everything being about box-ticking.
But, if I'm honest (and I expect this is just as true, if not more true, for others) I was also chasing yield. At the time I couldn't see that I was being manipulated, but think about it: if the Central Bank makes ISAs fail to keep up with inflation, what are you supposed to do?
Not everyone wants to get into stocks, especially in today's market.... so a 12% return secured by property sounds pretty good.
All respect to SavingStream for providing a product that people are likely to want. The fact it's an artefact of government action isn't immediately obvious and they certainly weren't setting out to be an arm of government! Quite the contrary. Yet that's what it is: the Central Bank sets rates so low that nobody gets any return on their savings. This also increases the demand for credit and, short of paying people to take on debt, that's as far as this particular 'stimulus' can go, but the magic and beauty of it (from the perspective of the psychopaths who run the Central Banks at least) is that it also tempts us into lending to those borrowers the traditional banks don't want. Bonus!
And if it all goes horribly wrong? Well we're just greedy capitalists chasing yield. We only have ourselves to blame, right?
I'm not Carney's patsy but if you reflect on it and think it's worth it, that's a perfectly rational choice. Look, the way things are right now, the housing market's likely to stay propped up for a few more years yet. So long as that's so, and so long as the base rate stays at zero (which it will), SavingStream is pretty safe.
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