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Post by GSV3MIaC on Apr 4, 2016 18:10:30 GMT
Depends how the advances are being structured, but yep, there is a real danger with a development project that the resale value actually goes =down= as half completed work is done, since (worst case) the new buyer might have/want to demolish the lot and start over. You have to hope the original developer can finish, and has not done anything monumentally stupid or illegal w.r.t. building regs, listed building status, contamination cleanup, etc. Your surveyor ought spot an issue and avoid you paying more money in, but that won't erase any mistakes already made.
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brin
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Post by brin on Apr 4, 2016 20:51:48 GMT
... but there is always an asset available, the original amount taken out by the developer would (hopefully) be max 70% ltv, and as works proceed so the asset becomes more valuable and the ltv% becomes lower... : That's not the way I understand it. ISTM that in many cases the initial loan is for 70% of the property purchase price, so the LTV starts out at 70%. Then, as the development work progresses the further advances usually are 70% of the money expended. So after £100k of work is done, the borrower is advanced a further £70k. This is repeated multiple times during the development phase, so the LTV stays at 70% throughout the development. OK, the LTV might be a bit lower between advances when £50k of work has been done and the next advance hasn't been claimed/made yet, but there's also the question of how much a part completed project could be sold for -- there may have been £400k of work done, but it's probably unlikely that another developer could be found who would be willing to pay £280k (70%) for the right to carry on the project, since the work completed to that point might not have been done the way the new developer would have done it, so some reworking is bound to be required. hello mike1531.. I think my main point was lost some 8 or 9 post's ago, it keeps getting snipped, my whole point was not based around funding, be my assumptions right or wrong, my post was made (which i pointed out to ilmoro and others) with regards to a quote in a previous post made by lb saying a scenario could exist where lenders might be forced to stump up more money or take some kind of legal action if further DFL funding was not made available to further progress a certain development. sorry too precarious.. not going there.
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Post by meledor on Apr 5, 2016 7:27:58 GMT
To concentrate on the size of SS provision fund is looking at this the wrong way round imo.
The average LTV of my SS portfolio of loans is 60% (which I guess would be fairly typical for others). Assume we have the quoted 50% reduction in property values (which is a bit higher than in the 2008 crisis). This would give a loss given default (LGD) of 16.7% (10%/60%). Assume also that all the loans default (PD=1) which is rather unlikely, then ignoring the benefit of the provision fund my expected loss is 16.7% or just under 17 months interest. I believe such an outcome is quite manageable in terms of likelihood in the foreseable future and the context of my overall investments. Is that a like for like comparison though? For some of the loans on offer they are simple property loans on already standing structures that would be devalued in that way as per the 2008 crisis. But others are empty fields speculating on planning permission, which may not be forthcoming, and carry the development risk beyond that. Even without a recession it's possible for some of these loans to end up with recoveries far less than the stated valuations, and it'll be down to SS's risk mitigation and advance planning to prevent that from turning into losses for lenders. A recession compounds those risks, and this is a market segment strewn with previously successful businesses that have been wiped out by a few bad deals. SS's loan book is still very young and effectively untested, and where refinances have happened there are borrowers who will have effectively not paid anything beyond a few fees for two years by the time the loan becomes due. Interest in the interim has been paid for by the lenders themselves, taken out of the amount loaned. SS's website says that to date around £23m (19% of the loans made to date) has been repaid by borrowers thus far, but as I understand it a substantial portion of even that has been refinanced on platform with lenders effectively paying back the loans to themselves. So there are still substantial questions to be answered about performance of the loans that only time will tell. If properly managed there is money to be made in this segment and that will ultimately be the measure by which SS are judged in the long term. I personally believe it to be far higher risk than many lenders perceive though. This isn't my area of expertise so if I'm off base I'll be happy to apologise and get input from those who do assess risk in this arena, it's just the information I've picked up via other conversations that have been had. My comment is not 'a like for like comparison'. Rather it is a perspective that seeks to provide some balance to the undue emphasis on the small size of the SS provision fund compared with others. You can easily come up with possible scenarios that are worse than mine, but property does not operate completely independently of the rest of the economy and reductions in property values of 50% or more in my opinion imply catastrophic defaults in the consumer and SME sector that would have grave implications for the whole of P2P.
It is true that a lot rides on the accuracy of the valuations and we need to be aware of the potential dangers of speculative investment in the later stages of a property boom inflating values across the board. You are not correct however if by 'empty fields speculating on planning permission' you are implying the valuations are based on planning permission which has yet to be given. There was one proposed loan where that was clearly stated to be the case but it never went live. Valuations for 'empty fields' are based on existing use (e.g. agricultural) or existing planning permission.
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littleoldlady
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Post by littleoldlady on Apr 5, 2016 8:49:15 GMT
IMO RS is preferable to SS if:
Your priority is not having any defaults at all - you prefer say 4% with no defaults to 6% net after defaults
You have maxed out the FSCS accounts paying similar rates to RS
You anticipate a major property slump
You don't mind the market rate dropping to 1.3% (which happened to me and caused my exit) if you choose to use it.
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boundah
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Post by boundah on Apr 5, 2016 14:03:58 GMT
IMO RS is preferable to SS if: Your priority is not having any defaults at all - you prefer say 4% with no defaults to 6% net after defaults You have maxed out the FSCS accounts paying similar rates to RS You anticipate a major property slump You don't mind the market rate dropping to 1.3% (which happened to me and caused my exit) if you choose to use it. Fair list but: - Can you tell me which FSCS account pays rates close to RS? I'd be interested. - I've been with RS almost from the start - not sure why anyone would set to market rate (although clearly plenty do). I've always managed to lend at a few ticks higher even if it's meant waiting a couple of days for the funds to be taken.
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jonah
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Post by jonah on Apr 5, 2016 16:28:11 GMT
IMO RS is preferable to SS if: Your priority is not having any defaults at all - you prefer say 4% with no defaults to 6% net after defaults You have maxed out the FSCS accounts paying similar rates to RS You anticipate a major property slump You don't mind the market rate dropping to 1.3% (which happened to me and caused my exit) if you choose to use it. Fair list but: - Can you tell me which FSCS account pays rates close to RS? I'd be interested. - I've been with RS almost from the start - not sure why anyone would set to market rate (although clearly plenty do). I've always managed to lend at a few ticks higher even if it's meant waiting a couple of days for the funds to be taken.
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littleoldlady
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Post by littleoldlady on Apr 5, 2016 16:41:20 GMT
IMO RS is preferable to SS if: Your priority is not having any defaults at all - you prefer say 4% with no defaults to 6% net after defaults You have maxed out the FSCS accounts paying similar rates to RS You anticipate a major property slump You don't mind the market rate dropping to 1.3% (which happened to me and caused my exit) if you choose to use it. Fair list but: - Can you tell me which FSCS account pays rates close to RS? I'd be interested. - I've been with RS almost from the start - not sure why anyone would set to market rate (although clearly plenty do). I've always managed to lend at a few ticks higher even if it's meant waiting a couple of days for the funds to be taken. Most banks offer such accounts but only on limited amounts so you have to open a number of them to save a worthwhile sum I use TSB 5%, Lloyds 4%, Santander 3% all instant access on £80K. You might get a little more on RS but not enough to justify the relative risk and withdrawal delay IMO.
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adrianc
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Post by adrianc on Apr 6, 2016 12:15:16 GMT
Fair list but: - Can you tell me which FSCS account pays rates close to RS? I'd be interested. - I've been with RS almost from the start - not sure why anyone would set to market rate (although clearly plenty do). I've always managed to lend at a few ticks higher even if it's meant waiting a couple of days for the funds to be taken. So the answer is "none". Glad we got that cleared up.
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jonah
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Post by jonah on Apr 6, 2016 18:36:48 GMT
For relatively small amounts, 6% and FSCS is possible. For slightly larger ones 5% would be needed to retain FSCS. For multiple 10's of thousands than you need to go to 4% or lower to maintain the guarentee. Personally a balance can be found I think.
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littleoldlady
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Post by littleoldlady on Apr 7, 2016 7:12:50 GMT
I have £80k earning about 3.5% overall in instant access FSCS accounts. Unless RS rates have shot up recently this is comparable for instant access. You can get more on RS if you tie your cash up for longer but this has two risks: interest rates might go up, and the next slump might occur causing a spike in defaults. If you have much more than £80K then I don't know of any FSCS accounts which can compete with RS, but with that amount safe in secure accounts the extra could be spread across a widely diversified set of loans in SS, MT and FS which would, IMHO, offer a better risk:reward ratio than RS, unless you anticipate a major property slump. RS falls between the two stools of safety and return.
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