Loan Secuirty Valuations Flashcards
What is a loan security valuation?
When a property is used as security in order for someone to lend money from the bank. A way for a lender to determine a value of a property so they know if they can recoup the amount of the loan if the borrower defaults on their loan repayments.
What is the difference between VPGA(2) and UK VPGA (10)?
UK VPGA (10) makes note that it is good practice for the valuer to get in writing that they can communicate directly with the borrower to obtain information that is not publicly available. Also, UK VPGA (10) refers to panel agreements (where terms of engagement and reporting requirements are standardised after agreement between lender and firm) whereas VPGA (2) does not.
What are some examples of bridging lenders?
Castle Trust Bank, Bridginvest, Lendinvest
What do D&B scores tell you?
They provide a quick and clear indication of a credit-worthiness of a company. The first score assesses financial strength from N to 5A and the second score assesses risk from 1 to 4. 5A1 is best score possible.
How else can you consider a company’s financial strength?
Analysing their balance sheets and income statements – can also do the profits test.
How do lenders stress test suitability for lending?
Special assumption valuations allow lenders to test serviceability/end value in the event of certain market conditions. More broadly, they will have their own internal lending risk criteria which will lead to certain LTVs and rates they can lend at.
Where did you agree the special assumption in the Purpose built student accommodation, Canterbury
In the terms of engagement. Special assumptions need to be agreed in writing and requested by the client.
How else can you value SA MVVP?
Using the comparative method looking at sales of vacant units.
Why did the client ask for VP and how can a VP property be suitable for lending?
They wanted to know whether it would still be valued at enough money to recoup their money if it was unlet. It can still be suitable as it is a bricks and mortar building that will still have value. In this case, the residential market was strong and the retail market was reasonable so voids would not be too long as income would be coming in to service this debt.
What are examples of assumptions you make?
There are no issues with the title, there is no contamination, there are no breaches of planning and the building complies fire/health and safety regulations.
What is a profits test?
A test of a tenant’s covenant strength and how likely they are to default on rental payments. If the net profit for the last three years is 3 x the rent then they pass the test (or if net asset value is 5 x the rent). If they pass the test it may mean they do not have to pay a rental deposit (or a reduced one).
What does VPGA(2) say about conflicts?
That you must inform the lender if you have had any previous, current or anticipated involvement with the property or borrower. Previous involvement constitutes the past two years.
What lease events could impact on suitability for lending?
Break clauses – means the income is not secure for the whole term
What other types of rent review are there?
Open market rent reviews (usually upward only) where the rent is adjusted to reflect the rent that could be achieved on the open market.
Index linked rent reviews (with the RPI or CPI) where the rent increases in line with an index that measures inflation. It can have a cap (maximum) and collar (minimum) in which it can increase.
Assumptions of rent reviews = vacant, term is equal to original lease length
Disregard of rent reviews = tenants good will, tenants improvements
How can an owner occupied property with no income be suitable for lending?
As properties can still demand a high value when vacant as it can be attractive to certain occupiers wanting their own space. In particular, industrial units where there is high demand for units and where an occupier can make changes to the property to make it most suitable for how they are using it and need to be in certain location.
