registerme
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Post by registerme on Jul 25, 2017 12:02:15 GMT
Reading this post by mrclondon, and the one further down by @magenta14, it occurred to me to wonder how important ground rents are to the expected future cashflows / valuations / GDVs of other development loans out there (MT, Lendy, FS, Collateral, whichever....). Any thoughts? |
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moogman
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Post by moogman on Jul 25, 2017 12:20:34 GMT
It is common practice for developers to sell individual units in a block of flats under a medium length leasehold (say 125 years), then sell the freehold onto someone else once the development is completed. In cases where the ground rent is less/peppercorn, then the freehold will be worth rather less. The profit on development is the build and re-sale, and so the freehold sale is a lesser additional profit.
Valuers will consider the ground rent income at nominal value, but hopefully not non-standard terms of the loan agreement (e.g. ground rent doubles each 10 years). A large portion of the freehold value therefore should be from reversion time so I would hope it won't affect "us" drastically.
I note there is one loan on COL that is structured this way, the freehold having it's own loan agreement.
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Post by mrclondon on Jul 25, 2017 13:05:26 GMT
I hope we don't have too many valuations that include the present value of future ground rents. However, many (most ?) borrowers/developers will be including the sale of the freehold in their own profitability analysis, and possibly in their cashfow analysis as well. This could easily have an impact on their ability to continue with other developments already underway (for which they believed the cash was "in the bag")
In one way or another this is likely to affect a significant proportion of developments we lend against. As an example, just one of many, MT's Bollington loan is a development of leasehold houses (section 22 of valuation report). Which, if this proposal is enacted, will now not be leasehold.
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jlend
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Post by jlend on Jul 25, 2017 13:43:21 GMT
My personal thoughts.
I think the legislation if it goes ahead is a good thing.
I think new leasehold houses should not be allowed reading some of the recent press stories. I would hope the platforms don't wait for the legislation and don't sign up for any new loans where this is the case.
As for leasehold flats I would hope again that the lease terms are reasonable. I am sure I am not alone in not wanting to be associated with developers that include unreasonable terms in their leases.
Of course I would expect buyers solicitors to pick this up, but I would hope that the platforms have some checks as part of their due diligence in any p2p loans prior to this. It may be the platforms don't do that at present, but I hope they do it going forward.
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registerme
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Post by registerme on Jul 25, 2017 13:44:26 GMT
It would be interesting to get the thoughts of MoneyThing and Paul64 (and any other platform reps that people care to tag). |
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jlend
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Post by jlend on Jul 25, 2017 13:49:26 GMT
I hope we don't have too many valuations that include the present value of future ground rents. However, many (most ?) borrowers/developers will be including the sale of the freehold in their own profitability analysis, and possibly in their cashfow analysis as well. This could easily have an impact on their ability to continue with other developments already underway (for which they believed the cash was "in the bag") In one way or another this is likely to affect a significant proportion of developments we lend against. As an example, just one of many, MT's Bollington loan is a development of leasehold houses (section 22 of valuation report). Which, if this proposal is enacted, will now not be leasehold. Personally I hope the Bollington loan developers at least reconsider their decision prior to any change in legislation to see what can be done.
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Post by sannytwist on Jul 25, 2017 15:27:44 GMT
I can see how this affects people who are living in leasehold properties but in terms of future sales , what is the effect of current loans like Bollington (if any)?
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registerme
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Post by registerme on Jul 28, 2017 15:13:52 GMT
Does anybody know if the proposed legislation is intended to be retroactive?
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ilmoro
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Post by ilmoro on Jul 28, 2017 15:22:48 GMT
Does anybody know if the proposed legislation is intended to be retroactive? You can read it here Says new leases but as its a consuktation it may be that it resukts in action to tackle unfair contracts. Certainly campaigners are likening it to PPI.
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Post by Deleted on Jul 28, 2017 15:53:19 GMT
The CEO of TW. sees it as likely to be a new PPI, hence he has set money aside to pay it off.
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stub8535
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Post by stub8535 on Jul 28, 2017 16:16:10 GMT
Wonder how individual investors who purchased ground rent contracts at a premium based on expected returns are going to fare. Not one of them.
I believe the government are using sledgehammer to crack a nut in this case.
Yes, the contracts can be exploitative and all one sided thus needing a semblance of reasonableness to be applied, whether for future contracts only or also retrospectively.
Householders in a property with a leasehold that has onerous terms should have had them pointed out be their solicitor. If they were not then take steps for recourse. If ignored then live with it or buy the leasehold back as early as they can.
I suspect prices for purchase of leaseholds are currently subdued.
Plenty of p2p sites willing to lend I am sure.
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ilmoro
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Post by ilmoro on Jul 28, 2017 16:32:01 GMT
Wonder how individual investors who purchased ground rent contracts at a premium based on expected returns are going to fare. Not one of them. I believe the government are using sledgehammer to crack a nut in this case. Yes, the contracts can be exploitative and all one sided thus needing a semblance of reasonableness to be applied, whether for future contracts only or also retrospectively. Householders in a property with a leasehold that has onerous terms should have had them pointed out be their solicitor. If they were not then take steps for recourse. If ignored then live with it or buy the leasehold back as early as they can. I suspect prices for purchase of leaseholds are currently subdued. Plenty of p2p sites willing to lend I am sure. Its not the leasehold they need to buy but the freehold and the prices of those are certainly not subdued. That is the other part of the 'scandal' that although leaseholders have the legal right to buy the freehold exhorbitant prices are being demanded by the seller. Otherwise I agree with the basic argument that the issue is the contracts and their abuse rather than the ownership model per se. Not sure a consultation can really be called a sledgehammer but the govt had to do something as it is a media 'cause celebre' and thats what drives govt these days.
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stub8535
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Post by stub8535 on Jul 28, 2017 17:20:55 GMT
Thanks for correcting my use of the wrong terminology ilmoro. I agree that government are respinding to the newspaper criticisms. Shame the newspapers spin it all as being a huge cash machine for larger companies offshore to do multiple trades instead of printing some wider base facts as well. Our press has never been fair and unbiased in the way they report stories as they always have an angle to support with their readers. |
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daveb4
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Post by daveb4 on Jul 28, 2017 19:36:09 GMT
From a small bit of experience in this area these big increases are mainly due to more recent London developments. Also some builders were a little more greedy than others TW. Purchasers of freeholds paid a lot of money for these leases, interesting times.
Possibly another issue of people in London thinking we are all the same. Happy to be contradicted.
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Post by mrclondon on Jul 30, 2017 10:57:38 GMT
I've been chatting to the director of a small local estate agency here in London, and he thinks the impact on the new build sector could be both quite significant and quite sudden. His view is that to buy a new build leasehold house now is complete madness, and he believes that such new build houses should now be essentially unsellable without a 999 year lease at a peppercorn non-escalating ground rent. Developers will have to adapt quickly if they want to sell. New build flat/apartments should similarly now be unsellable with non-peppercorn ground rent in areas where there is expected to be significant additional new build flats/apartments available over the next couple of years. One of his market focuses is the huge Nine Elms / Battersea Power Station complex where as yet only a small proportion of the total number of flats earmarked for the area have been completed. Why would you complete on a flat now at a ground rent of upto £1,250 per annum (source: one random development EDIT - link fixed) when maybe in a matter of weeks that could be just £1 pa ? He was however unable to offer any insight into the what the likely impact will be on current freehold investment portfolios (e.g. COL and MT loans), but said a stronger government would at this point legislate for the ability for leaseholders to purchase the freehold (or share thereof) at "affordable" prices, i.e. ignoring the daft ground rents which of course generate a daft present value of future ground rents. He thinks that the government will implement (quite quickly, certainly this year) an initial batch of changes via a statutory instrument. Any changes that need primary legislation (which is likely to be required for changes to existing leasehold agreements) are likely to end up in the 2022 manifesto, and will almost certainly be defered until after the brexit legislation. This is just the view of one guy at the sharp end of the inner London property market. |
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