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Post by chris on Feb 27, 2016 10:01:38 GMT
Given LTV (loan to value) is one of the key figures used by lenders when assessing loans it may come as a surprise that there are multiple methodologies that can be used to calculate it. One method may be to use (loan amount) / (sum(security value - prior charges)). In a recent question to me that was the method one lender used.
Assetz uses (total value of loans including prior charges) / (total value of the security) which gives a more conservative figure and, in our opinion, more accurately reflects the lender's position. This effectively says that the total value of the security has to service the total value of the debt in order for lender funds to be returned in full.
Take for example a £100k loan secured against a £130k first charge, vs a £100k loan secured against a £280k second charge that has £150k of prior charges. In our calculation the LTVs would be 77% for the first loan and 90% for the second loan. Using the other calculation above you end up with the 77% for both loans. However in a distressed sale whereby the asset ends up being sold at a 20% discount in the first loan you'd just about get a full return on your capital whereas in the second loan you'd end up with a £26k capital loss. A 20% write down in asset value causing a loss on a 90% LTV loan isn't nearly as surprising as on a 77% LTV loan.
I would be interested to know the methodologies used by other platforms as understanding this is important for lenders to know they are comparing like for like figures.
For example I did a quick sanity check on SS loan PBL052 and they don't even seem to take into account the prior charges in their calculation. Hopefully I have misunderstood their methodology so I'd welcome input from other forumites and platforms as to each's reasoning and methodology. Is there a better way than the one used by AC, as our own methodology only gives a snap shot picture and doesn't take into account the changing value of the security over time unless the figures are manually changed?
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Balder
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Post by Balder on Feb 27, 2016 10:55:35 GMT
I see SS has some other platforms worried!
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Post by chris on Feb 27, 2016 11:13:02 GMT
I see SS has some other platforms worried! Actually I checked FC and FK as well and neither seem to be displaying LTV at all. I'm genuinely curious.
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oldgrumpy
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Post by oldgrumpy on Feb 27, 2016 12:22:20 GMT
I see SS has some other platforms worried! Actually I checked FC and FK as well and neither seem to be displaying LTV at all. I'm genuinely curious. Fiddling Concertos quotes it on the loan page and in the Investor report. It looks like FK leaves investors to work it out themselves. Attachments:
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Post by chris on Feb 27, 2016 13:46:26 GMT
Actually I checked FC and FK as well and neither seem to be displaying LTV at all. I'm genuinely curious. Fiddling Concertos quotes it on the loan page and in the Investor report. It looks like FK leaves investors to work it out themselves. Hmm silly me, I expected their aftermarket loans to present the same information as their primary auction loans, but Flipping Confusing seems to show different information and doesn't include LTV on those aftermarket loans? All their primary market loans seem to be first charges, and whilst there are plenty of aftermarket property backed loans that have second charges they no longer display the LTV. Is that right or am I being particularly dense?
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shimself
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Post by shimself on Feb 27, 2016 14:04:41 GMT
Could you ask the p2pfa to make a ruling?
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Post by chris on Feb 27, 2016 14:31:04 GMT
Could you ask the p2pfa to make a ruling? We're not members.
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registerme
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Post by registerme on Feb 27, 2016 14:46:35 GMT
If nothing else it would be useful for all platforms to agree on standard terms, and where possible standard usage of such terms. That way we could at least compare and contrast, and look at unusual offerings more closely.
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Post by chris on Feb 27, 2016 14:58:05 GMT
If nothing else it would be useful for all platforms to agree on standard terms, and where possible standard usage of such terms. That way we could at least compare and contrast, and look at unusual offerings more closely. It'd be nice but I doubt you'd ever get all the platforms to agree on standard definitions and usage of terms. An alternative would be to at least document what each platform does and what each term means.
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sqh
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Before P2P, savers put a guinea in a piggy bank, now they smash the banks to become guinea pigs.
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Post by sqh on Feb 27, 2016 18:09:53 GMT
If nothing else it would be useful for all platforms to agree on standard terms, and where possible standard usage of such terms. That way we could at least compare and contrast, and look at unusual offerings more closely. It'd be nice but I doubt you'd ever get all the platforms to agree on standard definitions and usage of terms. An alternative would be to at least document what each platform does and what each term means. There are often comments and caveats in the Valuation Report which are undefinable and get ignored by the P2P platform. These can make a big difference to the LTV. But if you did set a standard, then the LTV number could be considered a rating, and I think you are against ratings, because that can be considered advice.
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Post by chris on Feb 27, 2016 18:51:17 GMT
It'd be nice but I doubt you'd ever get all the platforms to agree on standard definitions and usage of terms. An alternative would be to at least document what each platform does and what each term means. There are often comments and caveats in the Valuation Report which are undefinable and get ignored by the P2P platform. These can make a big difference to the LTV. But if you did set a standard, then the LTV number could be considered a rating, and I think you are against ratings, because that can be considered advice. I don't think it would be construed as being a rating, you are correct we feel they're a big no no either now with the FCA or in the future where a platform is sued for providing inaccurate advice. It would be considered a metric with a defined and published formula, and those are fine.
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registerme
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Post by registerme on Feb 27, 2016 20:43:21 GMT
It would be considered a metric with a defined and published formula, and those are fine. Bingo. It wouldn't be a fit all metric, and would be far from perfect in so many ways, but.... if the industry is to mature something along these lines will happen. And the platforms that don't want to play will be open to question... I give up. I've edited this post three times to get the quote boxes right and every single time, even after I've removed it in BBCode, the extra quote tag comes back.
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mikes1531
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Post by mikes1531 on Feb 27, 2016 23:12:41 GMT
Bingo. It wouldn't be a fit all metric, and would be far from perfect in so many ways, but.... if the industry is to mature something along these lines will happen. And the platforms that don't want to play will be open to question... I give up. I've edited this post three times to get the quote boxes right and every single time, even after I've removed it in BBCode, the extra quote tag comes back. : Does that mean your 'signature' needs updating? 
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mikes1531
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Post by mikes1531 on Feb 27, 2016 23:18:11 GMT
For example I did a quick sanity check on SS loan PBL052 and they don't even seem to take into account the prior charges in their calculation. It depends on where you look. For the one-line entries in the various tables, etc., PBL052 shows the LTV to be 33%. If you look at the loan Particulars, you'll find it stated as the more proper 60%. I think the way AC do it is the right way. If the LTV is shown to be 70%, it ought to mean that as long as the security can be sold for net proceeds equal to 70% of its 'value' the investors ought to be able to exit without loss.
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registerme
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Post by registerme on Feb 28, 2016 0:50:39 GMT
Does that mean your 'signature' needs updating? Not this time, no. At least I don'think so. Though if thunderous herds of p2p hooves come a clatterin down on ma hed. Well, the sig might change  .
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