Hunting Licences

It's an interesting idea, but I'm not sure how easily AC will find investors willing to commit funds knowing the income until drawdown is just 1% p.a.  Perhaps it will work out OK if the fund is big enough and once most of the funds are deployed.

Are lenders about to be offered another 'special' account like the GEIA and GBBA?  Or will the funding come from AC's institutional backers?  (I would have thought that most of those will have raised funds from their own investors already and be wanting to deploy it now so that they can start paying dividends, rather than being willing to commit it to property developers whose needs are in the future because haven't found a project to invest in yet.)

mikes1531 , I think the 0.25% quarterly fee is just for AC.  There is no actual capital exchange at this point.  If lenders were to get involved, that would be at the point where a drawdown on the pre-arranged security was made.  We've seen something very vaguely like this on #166 F*** C** Developments, except that they were charged 15% at the full facility even if only part of it was used (and the security was not really pre-arranged on the properties in question).

My view is that this is what Andrew/Chris having been talking about in terms of trying to drastically reduce some drawdown times.  For this segment of the market, they get all the security sorted out in advance, and only when the borrower actually needs the cash (i.e. to fund a separate purchase of some BTL or whatever) does the capital actually change hands - at which point fast (< 24hr) underwriting from institutions (or QAA) is probably done.  This may or may not then get dribbled out to retail lenders as a regular loan.

AC don't lose money due to timewasters because they charge fees for the initial legal work and ongoing facility charges per quarter to cover all (?) of those costs.

This is a bit like having a massive overdraft arrangement at the borrower's beck-and-call.

I'm not familiar with this sort of product but it does sound like it opens up a new market-space for AC.  Particularly given Stuart's background and Assetz for Investors' contact lists of lots of HNWI property people.

The key thing is that this removes the normal heavy-duty legal work at the point of most stress when a borrower is urgently trying to purchase a property.

Edit - Crossed with Ton ⓉⓞⓃ - yep - agreed.

OK.  This might be a good new product for AC, but they can't sell this directly to their retail lenders because of the reaction they'd get putting up an upcoming loan today and saying it's drawing down tomorrow.  If they let institutions take the loan, then we'll get none of it, so there'd be nothing in it for us.  (And, as I pointed out earlier, that would mean the institutions having to keep funds idle waiting for AC to ask for the money --and I'd be surprised if they were willing to do that for no return, or even the 1% being paid by the Hunting Licence holders.) 

So all that leaves that would do us any good is the QAA option, which is how I hope most of these new loans go.  Use the QAA to fund the drawdown and then, after we've had a week or so to decide how much we want to invest, release the parts onto the SM.  That week also would provide the earnings the QAA needs to pay the 3.75%.  It seems to me, however, that the QAA would need to be a lot bigger before this would work smoothly, though AC clearly are working on that.

Borrower rates are 9-12% depending on the charge and LTV, and they have fees to pay on top.  AC will consider loans outside the stated LTV range but in that case rates are sure be higher.

I've not been able to find out the spread on AC but suspect it's of the order of 2% including underwriting costs, in which case lender rates will be 7-10% (or more for LTVs outside the range).  If anyone has better info I'd be interested to know.

mikes1531 - I don't think the institutions need to have designated funds sitting idle unless they are providing committed liquidity (for which they will want to be paid at least the borrower's 1% pa), and perhaps not even then. They will have an pool of liquid investments to draw on, whch can be sold at short notice. It would make sense for AC to offer the loans to institutional lenders and to underwriters (some of whom will be the same) on an uncommitted basis (so AC keeps the 1%), with the QAA picking up the slack if needed. If it ever looks like this won't be enough then AC can buy in some committed liquidity.

Depending on volumes AC could use the QAA as the primary underwriter and avoid the institutions where possible but I think they will be selective about that. I think institutions will want (and be offered) the safer, lower-rate loans while the QAA, and ultimately retail lenders, is more likely to be used for loans at the higher rate end of the spectrum - especially for loans that do not conform to the stated criteria.

That will be fine as long as AC do a good job communicating what they'll be doing so that MLIA investors don't keep getting surprised by what's happening.

The gap just got a hair thinner -- the QAA limit has been increased to £4M.

(Might that have something to do with the three loans that are supposed to draw down tomorrow?)