ashtondav
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Post by ashtondav on Aug 16, 2017 8:48:37 GMT
Someone told me today that banks won't go above 50% LTV. Just how risky is the FS 70% LTV?
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Post by mrclondon on Aug 16, 2017 8:56:50 GMT
Someone told me today that banks won't go above 50% LTV. Just how risky is the FS 70% LTV? Depends on the asset. 70% LTV 1st charge on a mainstream single residential property, the risk is close to zero. 70% LTV 1st charge on a commercial property, the risk is high (boom to recession will see a 50% drop in value typically) 70% LTV 2nd charge on a development plot valued on a residual value basis, the risk is bonkers The statement the banks won't go above 50% LTV is most likely in the context of commercial property.
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adrian77
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Post by adrian77 on Aug 16, 2017 10:12:41 GMT
In my experience the bank are happy at 50% - anything higher and the rates start to rocket.
Doubtless many developers with an FS (and others) loan have been rejected by the banks
Personally I don't invest in any second charges and only on first charges at under 65% and that is only if the fundamentals look OK to me.
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daveb4
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Post by daveb4 on Aug 16, 2017 20:50:39 GMT
Most tier 1 (main banks) go first charge against good reputation panel valuer:
60% residential development
50% rental income portfolio
70% residential
60% commercial
Secondary banks and p2p pick up the rest at higher rates
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Post by peerlessperil on Aug 17, 2017 0:20:45 GMT
With FS there is an added complication, in that interest is paid at the end of the loan such that the LTV increases throughout the term as interest accrues. If the rate is 12%, then a 70% LTV becomes 76% after 6 months (on the assumption property prices remain stable).
In reality it is worse than that as the borrower may be paying more than 12% to FS (12% being what we lenders receive), and the valuation was probably optimistic to start with.
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ashtondav
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Post by ashtondav on Aug 17, 2017 7:32:56 GMT
Yes, the 50% applied to commercial property.
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stokeloans
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Banks LTV
Aug 17, 2017 8:12:17 GMT
via mobile
Liz likes this
Post by stokeloans on Aug 17, 2017 8:12:17 GMT
If only the valuations could be relied upon to be accurate.
Then the percentage LTV might have some bearing
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will
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Post by will on Aug 22, 2017 8:29:11 GMT
With FS there is an added complication, in that interest is paid at the end of the loan such that the LTV increases throughout the term as interest accrues. If the rate is 12%, then a 70% LTV becomes 76% after 6 months (on the assumption property prices remain stable). In reality it is worse than that as the borrower may be paying more than 12% to FS (12% being what we lenders receive), and the valuation was probably optimistic to start with. Close, but not quite. It's 12% of 70%, which by my calcs makes the LTV 74.2% after 6 months. Still, a good point that I hadn't thought of! Another reason for targeting lower LTV loans and the LTV increase will be less over the term of the loan.
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Post by peerlessperil on Aug 24, 2017 0:30:33 GMT
Indeed, although I was quoting a round number from memory rather than simply dividing 12% by 2.
Property loans on FS start at 1.5% per month from the borrower perspective (with only 1% going to us investors), so 6 months interest on a 12% loan (18% to borrower) at 70% LTV gets the borrower to 76.3%....
But once you factor in receivers and auction fees it's a futile calculation either way.
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