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Post by earthbound on May 1, 2016 21:12:15 GMT
The 16% return, does not make the original loan any more risky, the 16% bonus rate is offered because the borrower wants a quick draw-down and is offering the bonus's to encourage investors in, as for defaults and default rates based on historical evidence, this is also a myth, even at the height of the 2007/8/9 crash, property devaluation was only recorded at approx 20% Q3 2007 to Q1 2009 ...over a two year period, approx 10% per year devaluation (see graph below) bear in mind most loans are for 6 or 12 months. If property bridging loans are valued correctly ,and loans are made on an LTV% OF 70% or lower, then it will take a crash even more relevant than 2008 to procure losses, In my time on this forum, negative speculation in regards to PBL's seems to be a norm, if you actually take a look at SS, FS and MT i think you will find no losses have occurred based on property loans, yes there may have been defaults, but no losses. There are many areas available to invest your wealth, but not many, historically, better than property.  www.economicshelp.org/blog/5709/housing/housing-market-stats-and-graphs/(Edit) For anyone interested in the relation of stocks and shares to the property market, the last major FTSE crash was in 1999/2000 (tech bubble burst's) , property prices rose 10%.... (safe haven) Based on residential property, commercial property may be different do your DD. |
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stevio
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Post by stevio on May 2, 2016 9:12:10 GMT
The 16% return, does not make the original loan any more risky, the 16% bonus rate is offered because the borrower wants a quick draw-down and is offering the bonus's to encourage investors in, as for defaults and default rates based on historical evidence, this is also a myth, even at the height of the 2007/8/9 crash, property devaluation was only recorded at approx 20% Q3 2007 to Q1 2009 ...over a two year period, approx 10% per year devaluation (see graph below) bear in mind most loans are for 6 or 12 months. If property bridging loans are valued correctly ,and loans are made on an LTV% OF 70% or lower, then it will take a crash even more relevant than 2008 to procure losses, In my time on this forum, negative speculation in regards to PBL's seems to be a norm, if you actually take a look at SS, FS and MT i think you will find no losses have occurred based on property loans, yes there may have been defaults, but no losses. There are many areas available to invest your wealth, but not many, historically, better than property. View Attachmentwww.economicshelp.org/blog/5709/housing/housing-market-stats-and-graphs/(Edit) For anyone interested in the relation of stocks and shares to the property market, the last major FTSE crash was in 1999/2000 (tech bubble burst's) , property prices rose 10%.... (safe haven) Based on residential property, commercial property may be different do your DD. The risk of default is no higher with 16% loans, but to the extreme, if you have 2x 16% loans and one defaults, that's half you loans effected. Compared to maybe 50x 12% loans, one defaults and 2% loans effected. The risk with property loans is not the loss of value, but the fear it creates, which can cause an exodus and a collapse of the platform
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Post by Deleted on May 2, 2016 9:29:08 GMT
' The risk of default is no higher with 16% loans, but to the extreme, if you have 2x 16% loans and one defaults, that's half you loans effected. Compared to maybe 50x 12% loans, one defaults and 2% loans effected.'
... Although if you hold 50 loans instead of 2, your chance of having a default is 25 times higher.
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Post by earthbound on May 2, 2016 9:39:16 GMT
The 16% return, does not make the original loan any more risky, the 16% bonus rate is offered because the borrower wants a quick draw-down and is offering the bonus's to encourage investors in, as for defaults and default rates based on historical evidence, this is also a myth, even at the height of the 2007/8/9 crash, property devaluation was only recorded at approx 20% Q3 2007 to Q1 2009 ...over a two year period, approx 10% per year devaluation (see graph below) bear in mind most loans are for 6 or 12 months. If property bridging loans are valued correctly ,and loans are made on an LTV% OF 70% or lower, then it will take a crash even more relevant than 2008 to procure losses, In my time on this forum, negative speculation in regards to PBL's seems to be a norm, if you actually take a look at SS, FS and MT i think you will find no losses have occurred based on property loans, yes there may have been defaults, but no losses. There are many areas available to invest your wealth, but not many, historically, better than property. www.economicshelp.org/blog/5709/housing/housing-market-stats-and-graphs/(Edit) For anyone interested in the relation of stocks and shares to the property market, the last major FTSE crash was in 1999/2000 (tech bubble burst's) , property prices rose 10%.... (safe haven) Based on residential property, commercial property may be different do your DD. The risk with property loans is not the loss of value, but the fear it creates, which can cause an exodus and a collapse of the platform Quite correct, that is where my worry lies, (not worried about defaults, stock market, or even sentiment) BUT..platform security. It doesn't matter what loans you are in or what interest you are getting, everything is threatened if the platform collapses. edit.. ie.. Trustbuddy
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stevio
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Post by stevio on May 2, 2016 10:58:29 GMT
' The risk of default is no higher with 16% loans, but to the extreme, if you have 2x 16% loans and one defaults, that's half you loans effected. Compared to maybe 50x 12% loans, one defaults and 2% loans effected.' ... Although if you hold 50 loans instead of 2, your chance of having a default is 25 times higher. The chance of a default is the same, the effect a default has on your portfolio is different
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Post by Deleted on May 2, 2016 12:12:19 GMT
' The risk of default is no higher with 16% loans, but to the extreme, if you have 2x 16% loans and one defaults, that's half you loans effected. Compared to maybe 50x 12% loans, one defaults and 2% loans effected.' ... Although if you hold 50 loans instead of 2, your chance of having a default is 25 times higher. The chance of a default is the same, the effect a default has on your portfolio is different If the chance of default is the same for all loans, it all depends if you prefer a low probability of a large loss or a high probability of a small loss. Mathematically, choosing the 16% option is the best choice, but most aren't comfortable holding all their eggs in one basket.
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SteveT
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Post by SteveT on May 2, 2016 12:14:50 GMT
More to the point, most don't have the £1m needed to take that approach in the first place!
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stevio
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Post by stevio on May 2, 2016 12:18:34 GMT
The chance of a default is the same, the effect a default has on your portfolio is different If the chance of default is the same for all loans, it all depends if you prefer a low probability of a large loss or a high probability of a small loss. Mathematically, choosing the 16% option is the best choice, but most aren't comfortable holding all their eggs in one basket. 16% option is best if you just look at return - the probability of a loss is the same, it depends on whether you could withstand a large loss, should it happen
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Post by reeknralf on May 2, 2016 17:25:12 GMT
' The risk of default is no higher with 16% loans, but to the extreme, if you have 2x 16% loans and one defaults, that's half you loans effected. Compared to maybe 50x 12% loans, one defaults and 2% loans effected.' ... Although if you hold 50 loans instead of 2, your chance of having a default is 25 times higher. The chance of a default is the same, the effect a default has on your portfolio is different You're obviously entitled to any investment strategy you choose, but you're giving the impression you really don't understand probabilities or the mathematical justification for diversification. It is simply not true that the probability of a default is the same. If the probability an individual loan defaults is p, the probability of having a default in a portfolio of n loans is 1-(1- p)^ n. You're preferred portfolio of 100 loans is all but guaranteed to have more defaults than my preferred portfolio of of 10 loans. The expected annual loss from defaults is identical for the two portfolios.
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Post by earthbound on May 2, 2016 17:40:53 GMT
That is of course assuming... Default=loss which the vast majority of time .. it doesn't.
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mikes1531
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Post by mikes1531 on May 2, 2016 21:15:32 GMT
... as for defaults and default rates based on historical evidence, this is also a myth, even at the height of the 2007/8/9 crash, property devaluation was only recorded at approx 20% Q3 2007 to Q1 2009 ...over a two year period, approx 10% per year devaluation (see graph below) bear in mind most loans are for 6 or 12 months. PBLs may be for 6-12 months when they are made, but my experiences on another platform are that if a borrower fails to repay and it becomes necessary to call in the receivers, investors will have their money tied up for considerably more than 6-12 months. ISTM that getting out in less than two years is likely to be difficult. Unless the platform allows trading in distressed loan parts, of course -- at which point it might be possible to get out sooner, but it probably would be necessary to sell those parts at a discount.
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stevio
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Post by stevio on May 2, 2016 21:24:29 GMT
The chance of a default is the same, the effect a default has on your portfolio is different You're obviously entitled to any investment strategy you choose, but you're giving the impression you really don't understand probabilities or the mathematical justification for diversification. It is simply not true that the probability of a default is the same. If the probability an individual loan defaults is p, the probability of having a default in a portfolio of n loans is 1-(1- p)^ n. You're preferred portfolio of 100 loans is all but guaranteed to have more defaults than my preferred portfolio of of 10 loans. The expected annual loss from defaults is identical for the two portfolios. The probability of an individual loan defaulting is the same for a 12% loan vs 12%+bonus loan When you reduce 'n', to the extreme let's say to n=1, then the effect on your portfolio of a default is larger. Even though the probability of a default is the same. A default is unlikely, maybe 5% chance, but should you be unlucky and have a small number of loans, it would have a larger effect The reason for diversification is not to alter the chance of a default, but to minimise the effect should you have a default
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Post by earthbound on May 2, 2016 21:30:40 GMT
... as for defaults and default rates based on historical evidence, this is also a myth, even at the height of the 2007/8/9 crash, property devaluation was only recorded at approx 20% Q3 2007 to Q1 2009 ...over a two year period, approx 10% per year devaluation (see graph below) bear in mind most loans are for 6 or 12 months. PBLs may be for 6-12 months when they are made, but my experiences on another platform are that if a borrower fails to repay and it becomes necessary to call in the receivers, investors will have their money tied up for considerably more than 6-12 months. ISTM that getting out in less than two years is likely to be difficult. Unless the platform allows trading in distressed loan parts, of course -- at which point it might be possible to get out sooner, but it probably would be necessary to sell those parts at a discount. Hi @mike1531 if a borrower fails to repay, no receivers are involved, FS take possession of the asset , being the lender with a first charge, as happened previously on the SS site where the nursing home defaulted, SS dealt with that scenario in a very efficient way and no losses were incurred, indeed the defaulter even received some funds back such was the efficiency of the SS default procedure, which lasted approx 3 months. I would be interested to know which platform you refer to where receivers were called in on pbl loan that defaulted, maybe it was not a pbl loan, it which case it is irrelevant, as we are dealing with PBL loans with a first charge in place.
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SteveT
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Post by SteveT on May 2, 2016 21:39:02 GMT
PBLs may be for 6-12 months when they are made, but my experiences on another platform are that if a borrower fails to repay and it becomes necessary to call in the receivers, investors will have their money tied up for considerably more than 6-12 months. ISTM that getting out in less than two years is likely to be difficult. Unless the platform allows trading in distressed loan parts, of course -- at which point it might be possible to get out sooner, but it probably would be necessary to sell those parts at a discount. Hi @mike1531 if a borrower fails to repay, no receivers are involved, FS take possession of the asset , being the lender with a first charge, as happened previously on the SS site where the nursing home defaulted, SS dealt with that scenario in a very efficient way and no losses were incurred, indeed the defaulter even received some funds back such was the efficiency of the SS default procedure, which lasted approx 3 months. I would be interested to know which platform you refer to where receivers were called in on pbl loan that defaulted, maybe it was not a pbl loan, it which case it is irrelevant, as we are dealing with PBL loans with a first charge in place. FS themselves already have at least one first charge property loan (London Parking Spaces) where an LPA Receiver has been appointed.
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on May 2, 2016 21:39:29 GMT
PBLs may be for 6-12 months when they are made, but my experiences on another platform are that if a borrower fails to repay and it becomes necessary to call in the receivers, investors will have their money tied up for considerably more than 6-12 months. ISTM that getting out in less than two years is likely to be difficult. Unless the platform allows trading in distressed loan parts, of course -- at which point it might be possible to get out sooner, but it probably would be necessary to sell those parts at a discount. Hi @mike1531 if a borrower fails to repay, no receivers are involved, FS take possession of the asset , being the lender with a first charge, as happened previously on the SS site where the nursing home defaulted, SS dealt with that scenario in a very efficient way and no losses were incurred, indeed the defaulter even received some funds back such was the efficiency of the SS default procedure, which lasted approx 3 months. I would be interested to know which platform you refer to where receivers were called in on pbl loan that defaulted, maybe it was not a pbl loan, it which case it is irrelevant, as we are dealing with PBL loans with a first charge in place. AC, definetely PBL and 1st charge, in fact several PBL are in recovery involving LPA, as are some SME. LPA receivers are quite likely to be involved in property recovery, we dont actually know they werent in SS case, as it wasnt relevant as SS were the borrower/lender so it was up to them how they achieved the recovery. AC it is a lender vote so recovery path is revealed. LPA are being used by FS for theproperty recovery currently underway - parking
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