pip
Posts: 542 
Likes: 725
|
Post by pip on Jan 30, 2016 10:10:26 GMT
I have quite a lot of property development loans. Kind of wish I didn't as I am coming to the conclusion that this whole sector is on the edge of a popped bubble, but hey ho I do.
What concerns me is how are the end dates determined. I now have two developments that are overdue due to the development being behind schedule. For one there is a delay on the sale and one planning permission. I also have a lot that have repaid well in advance of the date.
My question is do the end dates mean anything over a wild guess? Will I basically get my money back when the property gets to the next stage of completion, which could be much shorter or longer than originally anticipated.
Also I don't understand the interest payment on these loans? Is it actually the developer that pays the interest, if it is it seems odd as they wont have any cashflow in. Is there something else going on?
|
|
am
Posts: 1,495
Likes: 601
|
Post by am on Jan 30, 2016 10:22:09 GMT
If the borrower is borrowing £1m for a year at 8% to build a property he also (under FC's model) borrows £80,000 to pay the interest due (and more the pay the interest due on that, and so - it converges at about £87,000). The borrower also borrows more to pay FC's fees, plus an element for the interest on that.
FC are inconsistent on overrunning property bridging and development loans. These two (and earlier Harrogate) haven't been refinanced, but several others (most recently Tewkesbury) have been refinanced.
End dates aren't a wild guess, but they're not certain either, as you have discovered.
|
|
blender
Member of DD Central
Posts: 5,719
Likes: 4,272
|
Post by blender on Jan 30, 2016 11:47:49 GMT
The end dates also allow some contingency for overrun - how many months is not made clear. So they expect to repay early, which can be done without penalty.
|
|
pip
Posts: 542
Likes: 725
|
Post by pip on May 23, 2016 21:13:28 GMT
Still think the property development loan end dates bear little reality to reality. An awful lot go late, although still so far no real defaults.
|
|
|
|
Post by Harland Kearney on May 24, 2016 18:25:04 GMT
I have never had a property loan pay on its end date. Either early repayment (sometimes with a prior note from FC, sometimes at random), but a greater majority have needed refinancing and have ran at least 2 weeks overdue (but with all interest paid on the over running days paid). No defaults yet, but don't let that relax any DD.
|
|
pip
Posts: 542
Likes: 725
|
Post by pip on May 24, 2016 20:31:56 GMT
Well I think this should be a lot clearer in the prospectus. When they say a 12 month property loan, I think what they really mean is we expect this loan to be approximately 12 months, but may be significantly shorter or longer by anywhere up to 3 months either side.
|
|
acky
Posts: 481
Likes: 262
|
Post by acky on May 25, 2016 6:35:09 GMT
Well I think this should be a lot clearer in the prospectus. When they say a 12 month property loan, I think what they really mean is we expect this loan to be approximately 12 months, but may be significantly shorter or longer by anywhere up to 3 months either side. But of course. We know the loans are for property development, so obviously it is not known with certainty at the outset (a) how long the development will take and then (b) how long it will take to sell the completed properties. The borrower will repay as and when the units are sold. So we should always expect the actual term to be different to what's stated at the outset. In my experience, most property loans have repaid early, which is what you'd expect, with contingency having been allowed in the original term. Several loans, however, have not been repaid on time, some of which have been refinanced while others have been allowed to just go "late". Where I think FC have been appalling in their management is in not requiring the borrower to refinance by the end of the original term or slap them with a penal rate of interest and penalties.
|
|
bloodycat
Member of DD Central
Posts: 184
Likes: 84
|
Post by bloodycat on May 25, 2016 9:13:28 GMT
Several loans, however, have not been repaid on time, some of which have been refinanced while others have been allowed to just go "late". Where I think FC have been appalling in their management is in not requiring the borrower to refinance by the end of the original term or slap them with a penal rate of interest and penalties. FC are right to treat each case individually, where they are mainly failing is in keeping lenders properly informed. Where a loan is obviously going to overrun due to construction delays I agree borrowers should be required to refinance or at least formally agree an extension and pay the extra interest for the agreed extension before the end of the original term. Most lenders would probably be happy with that, those who don't wish to be in for an extended term would still be able to sell on the SM (though perhaps in that case FC should waive the selling fee). In other cases, where the construction has been completed on time and sales agreed but not completed it is difficult to predict how long any delay will be. Borrowers should still be required to pay any further interest due up-front (which they may have to borrow ) so lenders are not out of pocket but probably shouldn't be hit with heavier penalties. I know from recent experience of my parents moving into a new house that unpredictable delays can occur. They should have moved by the middle of February at the latest but it actually took to the end of April due to delays in the chain, most of which were due to the first time buyers at the other end of the chain, so even selling without a chain isn't guaranteed to go through smoothly. FC have to maintain a balance to be fair to lenders whilst remaining competitive. Whilst I'm sure there may be a few developers who are being unduly optimistic in their predictions of construction schedule and required marketing time who might be discouraged from being so if huge automatic penalties were applied, it would also discourage the more responsible borrowers. Most of the risk of property loans is that you might not get your capital back on time, overall they are a safer bet than most of the other loans. If you want absolute guarantees then you have to accept lower returns.
|
|
adrianc
Member of DD Central
Posts: 10,015
Likes: 5,144
|
Post by adrianc on May 25, 2016 12:46:07 GMT
Well I think this should be a lot clearer in the prospectus. When they say a 12 month property loan, I think what they really mean is we expect this loan to be approximately 12 months, but may be significantly shorter or longer by anywhere up to 3 months either side. In the what? I think I missed being given a copy of that...
|
|
pip
Posts: 542
Likes: 725
|
Post by pip on May 25, 2016 22:22:30 GMT
Guys ok I get your points:
A) yes no prospectus just a loan info that says the length of loan
B) I get it developing a property is hard to predict and the actual loan length won't match the prediction hardly ever.
However my point is that the loan is sold to CONSUMERS as a length of a defined period. I don't think it should be, as experience has shown me that the loan length is a very approximate figure.
I am just saying that it should be made clear as to how the loan will be repaid (refinance at a stage of development, selling properties to market or taking out buy to let mortgage etc) and make it clear that this date is unclear. I just don't want people lending money thinking they will get it back in exactly 12 months.
|
|
am
Posts: 1,495
Likes: 601
|
Post by am on May 30, 2016 18:40:44 GMT
Guys ok I get your points: A) yes no prospectus just a loan info that says the length of loan B) I get it developing a property is hard to predict and the actual loan length won't match the prediction hardly ever. However my point is that the loan is sold to CONSUMERS as a length of a defined period. I don't think it should be, as experience has shown me that the loan length is a very approximate figure. I am just saying that it should be made clear as to how the loan will be repaid (refinance at a stage of development, selling properties to market or taking out buy to let mortgage etc) and make it clear that this date is unclear. I just don't want people lending money thinking they will get it back in exactly 12 months. There is the investors report, which is a loan prospectus, and which does indicate the exit strategy. It is part of FC's general terms that loans may be paid back early without penalty, so no borrower should be relying on getting interest for the full period of the loan. You are probably supposed to understand that bridging and development loans can overrun, but considering that many of FC's lenders are not sophisticated investors perhaps this should be explicitly stated. It has previously been suggested (in the context of asset finance loans, which never got off the ground) that FC put up on their web site an explanation of each loan type (secured and unsecured SME, asset finance, commercial mortgage, bridge, property development loan, and any other category that might be introduced).
|
|
blender
Member of DD Central
Posts: 5,719
Likes: 4,272
|
Post by blender on May 30, 2016 19:16:31 GMT
There seems to be a bit of a misunderstanding here. The property loans are fixed length, as are the SME loans, and they can be paid back early but not late. Once they go past the end date the borrower is late, and in due course the loan can be defaulted and the security invoked. That is not the same as having an open-ended arrangement. The problem is that the projects they support often do have an end, and an end date which is unpredictable. So it seems that there is a mismatch between the loan contract and the nature of property development projects. It comes from have one set of terms and conditions which is supposed to fit SME and property development loans. They have tried to get round this by adding a few months to each loan's expected duration - allowing early repayment. At present it is a right mess - Croydon will fail to repay on Wednesday, to join the one I have which is 50 days late.
|
|
grahamg
Member of DD Central
Posts: 220
Likes: 62
|
Post by grahamg on May 31, 2016 11:16:01 GMT
There seems to be a bit of a misunderstanding here. The property loans are fixed length, as are the SME loans, and they can be paid back early but not late. Once they go past the end date the borrower is late, and in due course the loan can be defaulted and the security invoked. That is not the same as having an open-ended arrangement. The problem is that the projects they support often do have an end, and an end date which is unpredictable. So it seems that there is a mismatch between the loan contract and the nature of property development projects. It comes from have one set of terms and conditions which is supposed to fit SME and property development loans. They have tried to get round this by adding a few months to each loan's expected duration - allowing early repayment. At present it is a right mess - Croydon will fail to repay on Wednesday, to join the one I have which is 50 days late. Well i now have 9 Late property loans plus probably Croydon to come. Not Happy
|
|
|
|
Post by GSV3MIaC on May 31, 2016 12:18:30 GMT
/Mod hat off
I always planned to unload these when there are 2 payments left, if I wanted the money at some particular time (or even if I just don't want to risk the 'rather variable' Floating Charges approach to interest on overrunning property loans). If you leave it until only one payment is left, or if the RB gets removed, you are locked in for the duration. I reckon 0.25% loss (to unload at par, which almost always works, except for the really large ones) was well worth it.
|
|
blender
Member of DD Central
Posts: 5,719
Likes: 4,272
|
Post by blender on May 31, 2016 12:27:45 GMT
You are right, GSV. I was tempted to hang on to those 12% loans and expected not only to avoid the 0.25% fee but also to gain the balance of a month from early repayment. Foolish in that a lot of cash is tied up and at risk - though still earning 12% I hope after missing the date. We shall see.
Grahamg's 9 late property loans is a large number - but is it a record? Can anyone do better? or worse I suppose. Different tranches of the same project count, and late means not repaid on the due date and still outstanding in whole or part.
|
|
