Loan Security Flashcards
What is the overriding objective for valuers and lenders?
Valuer should understand the lender’s needs and objectives, including the terms of the loan
Lender should understand the advice that is given
What should be disclosed to the lender before an instruction is accepted?
Any previous, current or anticipated involvement with the prospective borrower or the property to be valued
Previous involvement = in past two years
What should the valuer enquire about before report?
The terms of the lending facility
If there has been a recent transaction/provisionally agreed price (if so, must make further enquiries into extent of marketing, effect of incentives and whether the best price was obtained)
How should special assumptions be reported?
With a comment on any material difference between the reported value with and without the special assumption
What are examples of special assumptions for secured lending purposes?
- Planning consent has been granted
- A new letting on given terms has been completed
- There is a special purchaser
- Vacant possession (any leases are disregarded)
What matters should be considered and reported on in report?
The extent to which a recent transaction/provisionally agreed price has been accepted as evidence of value
The suitability of the property as security for mortgage purposes
The current marketability of the property and whether it will be sustainable over course of the loan
Sustainability and ESG factors
What is a loan security valuation?
When a property is used as collateral in order for someone to secure a loan from a bank - the bank needs a valuation to determine whether they can recoup the amount if someone defaults on the loan
How is a loan secured against a property?
A lender can obtain a legal charge over the title of a property
If there is a failure to make loan repayments then the bank will appoint a fixed charge receiver to come up with a strategy to get bank as much money back as possible
What is a bridging loan?
A short term loan used when you want to buy something but you’re waiting for funds to become available from the sale of something else
What is a swap rate?
Fixed interest rate that a receiver demands to cover the flow rate over time
What is interest cover?
A ratio used to determine how easily a company can pay interest on its outstanding debt
How much has the base rate gone up since September 2023?
2.25% (14 incremental increases to try and curve inflation)
What is inflation rate?
6.7%
Rising due to soaring food and energy bills
What is amortisation?
Spreading the cost of something over its lifetime
An amortised loan has scheduled, periodic payments that are applied to both the loan’s principal amount and the interest accrued
(Interest paid off first and then put towards reducing principal amount)
Which UK VPGA relates to loan security?
UK VPGA (10)
Valuer should get in writing if they are having a direct line of communication with applicant
