Liz
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Post by Liz on Feb 7, 2017 18:01:25 GMT
Going live tomorrow.
Any views?
The security looks like an easy sell at auction, but it is a security I'm very unfamiliar with.
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mikes1531
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Post by mikes1531 on Feb 7, 2017 19:59:11 GMT
The security looks like an easy sell at auction, but it is a security I'm very unfamiliar with. AIUI, the security is basically a £12k p.a. income stream. So the £300k value depends on finding someone willing to make an investment with a 4% yield. I certainly wouldn't, but the valuer thinks it could be done. I suppose they ought to know, because of the business they're in. If interest rates rise, it might become harder to find investors willing to settle for a 4% yield, and that would reduce the price they'd be willing to pay for that £12k of annual income. A 5% yield would suggest a value of £240k, and a 6% yield would suggest a value of £200k. If I'm interpreting the VR correctly, the lease fixes the income at £12k for the first 15 years, so I wouldn't have thought that the prospect of an income increase in 2032 would have much impact on the price the security would fetch if it had to be sold if the borrower defaulted later this year. Which leads me to ask why the borrower wants to take out a FS loan, paying something like 10% of the value of the security to FS and their investors over the next six months. Why not just sell the security now? With interest rates probably more likely to rise than fall in the next six months, ISTM unlikely that they'd get a better price for it later this year. No doubt there's something about this that I don't understand. I suppose one open question is... If the flats haven't all been sold yet, who is going to pay the lease amount for the unsold flats? In short, is the security generating income at the £12k rate now? Or will it not produce that until all the flats are sold? If the latter, we need fundingsecure to tell us how many flats are generating income now.
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fp
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Post by fp on Feb 7, 2017 21:19:30 GMT
What are they predicting inflation at for the next year, close to 3%?
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ozboy
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Post by ozboy on Feb 7, 2017 22:30:12 GMT
Seems to me it's a 13%er for a reason.
It does mention in the VR that the £12K has the possibility to be almost double by way of the Freeholder charging for various Permissions, Fees, etc, so notwithstanding how many flats are sold, it may be reasonable to assume a minimum c£15K+ income? Which gives a 7.5% Yield at value of £200K or 5% @ £300K
I dunno, so many Questions as usual .................................
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Liz
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Post by Liz on Feb 7, 2017 22:32:17 GMT
"The subject ground rent represents an attractive investment proposition given
that the rent is to double over the first 3 review periods, and will most likely
therefore outperform the RPI index over the same period."
So in 45 years the rent will be £96K.
"It is worth noting that buyers of ground rent interests achieve income sources
from portfolios such as these, other than just from the ground rent. Leases
normally permit the landlord to charge fees for consents to assignment and
similar, as well as commissions for placing buildings insurance. In some cases
(particularly where individual ground rents are small), these sources of income
can exceed the actual level of income generated from rent."
Looks like the £12k isn't the only source of income.
The worry I have is that the "comparables" may not be very comparable, contracts and several other variables could differ massively, affecting value. This would not be a quick sale either if the borrower defaulted.
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ozboy
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Post by ozboy on Feb 7, 2017 22:38:09 GMT
Of course, the real Question is:-
IF this Borrower has problems with payments and/or provides endless excuses, how robustly will FS deal with them to protect our interests?!!!!
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r1200gs
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Post by r1200gs on Feb 7, 2017 23:28:56 GMT
"The subject ground rent represents an attractive investment proposition given that the rent is to double over the first 3 review periods, and will most likely therefore outperform the RPI index over the same period." So in 45 years the rent will be £96K. "It is worth noting that buyers of ground rent interests achieve income sources from portfolios such as these, other than just from the ground rent. Leases normally permit the landlord to charge fees for consents to assignment and similar, as well as commissions for placing buildings insurance. In some cases (particularly where individual ground rents are small), these sources of income can exceed the actual level of income generated from rent." Looks like the £12k isn't the only source of income. The worry I have is that the "comparables" may not be very comparable, contracts and several other variables could differ massively, affecting value. This would not be a quick sale either if the borrower defaulted. I only discovered this a couple of years back, frequently confused at the high prices I saw paid for the freehold of flats. Service charges, Commissions for arranging insurance and more, all charged to the leaseholders. It fertile ground for the rip off merchants as well.
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mikes1531
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Post by mikes1531 on Feb 8, 2017 18:18:48 GMT
This would not be a quick sale either if the borrower defaulted. Liz : What made you change your position from... The security looks like an easy sell at auction, but it is a security I'm very unfamiliar with. It might not take that long, since it could be viewed as a reasonably straightforward financial instrument. It would be even easier once the freehold is old enough to have a track record showing how much the 'extras' bring in, but that's not relevant for a short-term FS loan. I'm a bit disappointed that we haven't had any input from FS in response to... I suppose one open question is... If the flats haven't all been sold yet, who is going to pay the lease amount for the unsold flats? In short, is the security generating income at the £12k rate now? Or will it not produce that until all the flats are sold? If the latter, we need fundingsecure to tell us how many flats are generating income now. How about it fundingsecure ? Is the £12k/yr real income now? Or just jam tomorrow?
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Liz
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Post by Liz on Feb 9, 2017 11:27:53 GMT
This would not be a quick sale either if the borrower defaulted. Liz : What made you change your position from... The security looks like an easy sell at auction, but it is a security I'm very unfamiliar with. It might not take that long, since it could be viewed as a reasonably straightforward financial instrument. It would be even easier once the freehold is old enough to have a track record showing how much the 'extras' bring in, but that's not relevant for a short-term FS loan. On further investigation the valuation report states: "Ground rent interests are not particularly liquid, largely on account of legislation which requires the disposal of a freehold or head leasehold interest in a block of flats must first be offered to the occupying tenants. This right of first refusal does slow down the process for disposal but does not generally impact upon the price obtainable. An additional factor to bear in mind is that, individually, the value of some ground rent interests is small, yet transaction costs can be disproportionately high given the volume of due diligence work required."
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rs
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Post by rs on Jul 27, 2017 20:16:47 GMT
Liz : What made you change your position from...It might not take that long, since it could be viewed as a reasonably straightforward financial instrument. It would be even easier once the freehold is old enough to have a track record showing how much the 'extras' bring in, but that's not relevant for a short-term FS loan. On further investigation the valuation report states: "Ground rent interests are not particularly liquid, largely on account of legislation which requires the disposal of a freehold or head leasehold interest in a block of flats must first be offered to the occupying tenants. This right of first refusal does slow down the process for disposal but does not generally impact upon the price obtainable. An additional factor to bear in mind is that, individually, the value of some ground rent interests is small, yet transaction costs can be disproportionately high given the volume of due diligence work required." Heard this will be renewing in a couple of months and good SM rates on offer currently. Anyone heard differently.
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rs
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Post by rs on Jul 27, 2017 20:18:23 GMT
On further investigation the valuation report states: "Ground rent interests are not particularly liquid, largely on account of legislation which requires the disposal of a freehold or head leasehold interest in a block of flats must first be offered to the occupying tenants. This right of first refusal does slow down the process for disposal but does not generally impact upon the price obtainable. An additional factor to bear in mind is that, individually, the value of some ground rent interests is small, yet transaction costs can be disproportionately high given the volume of due diligence work required." Heard this will be renewing in a couple of months and good SM rates on offer currently. Anyone heard differently. stand corrected. Loan in last month so no SM available now.
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adrian77
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Post by adrian77 on Sept 18, 2017 17:04:35 GMT
ozboy wrote in Feb
- well ,prophetic words as here we are with the latest update (18th Sept) which seems, to me, to be just another weak excuse for non-payment of interest as the expected property sale did not materialise last week as expected but is expected next week....yes right. I had this on the market to ditch but left it too late to further increase the discount so I am an idiot. Taking that as given I really want FS to repossess this asset within the next 10 days should this "about to complete" house sale not take place next week. I think I have come across this chap in my business dealings and will do some more research but I am worried....
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Post by mrclondon on Sept 20, 2017 19:51:40 GMT
Renewal / consolidation is going live tomorrow.
Its worth noting that FS have, in the loan description, put the text "freehold interest" in bold font. Given the description also (still) states "The flats are in the process of being sold on 150 year leases" this loan appears to carry some risk if the governement was to make changes to the allowable level of ground rents sooner rather than later (i.e.. via statuory instrument rather than primary legislation).
As I've said in relation to other loans on other platforms in recent weeks, I'm avoiding such loans completely.
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mikes1531
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Post by mikes1531 on Sept 20, 2017 22:11:44 GMT
Renewal / consolidation is going live tomorrow. Its worth noting that FS have, in the loan description, put the text "freehold interest" in bold font. Given the description also (still) states "The flats are in the process of being sold on 150 year leases" this loan appears to carry some risk if the governement was to make changes to the allowable level of ground rents sooner rather than later (i.e.. via statuory instrument rather than primary legislation). As I've said in relation to other loans on other platforms in recent weeks, I'm avoiding such loans completely. I'm going to give this one a miss as well. I have a small part in the maturing first-ranking loan, but that's a 60% LTV loan and tomorrow's replacement/consolidation loan is 70% LTV at the same interest rate despite the increased LTV.
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r1200gs
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Post by r1200gs on Sept 20, 2017 23:42:33 GMT
Renewal / consolidation is going live tomorrow. Its worth noting that FS have, in the loan description, put the text "freehold interest" in bold font. Given the description also (still) states "The flats are in the process of being sold on 150 year leases" this loan appears to carry some risk if the governement was to make changes to the allowable level of ground rents sooner rather than later (i.e.. via statuory instrument rather than primary legislation). As I've said in relation to other loans on other platforms in recent weeks, I'm avoiding such loans completely. I should have added to my post back in February, the one where I said this was clearly ripe for abuse, that I could see that legislation was overdue and being considered. Major house builders adding significant ground rents doubling every ten years have finally dragged this sharp practise out in to the open. Massive fees for arranging insurance with leaseholders having no legal right to know what the freeholders commission is, and how about £100 to answer a letter from the lease holder? Best not to get involved with those who like sharp practise, and that's my nice way of putting it.
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