Loan Security

Question 1

what role does debt finance play. can you give me some examples of debt finance?

Answer 1

allows people to borrow money.
loan/mortgages, credit cards

Question 2

What are some of the risks with secured lending?

Answer 2

the tenant defaults and cant pay their loan. higher risk for the bank.

Question 3

how do you deal with sold off long leasehold interests?

Answer 3

990 year lease and the rent is peppercorn therefore i didnt capitalise the rents.

Question 4

why are title searches/ report on title important for loan security?

Answer 4

rights of way, site boundary, summary of previous lease details in order to check if its suitable for loan security. restrictive covenants- stating not for specific use.

always receive from client.

Question 4

What additional elements did you include in the Terms of Engagement to comply with the Red Book?

Answer 4

conflicts of interest checks- make sure can act independently/objectively
loan amount
enhanced due diligence- environmental/ flood/ contamination reference

Question 5

how do you establish if strong covenant strength?

Answer 5

CreditSafe

Question 5

Providing evidence of a specific valuation report in accordance
with valuation standards and incorporating a valuation
comparable matrix, sensitivity analysis or other evidence of
valuation methodology and approach
* Providing evidence of a specific valuation report in accordance
with valuation standards and incorporating appropriate
narrative on the strengths and weaknesses of the investment,
marketability if the lender was to re-possess and the risks
involved in lending in the property in relation to the loan terms
* Identify and explain the risk profile of property and how it affects
clients’ needs in terms of advice, i.e. why do they need advice?
* Providing valuation advice on a property’s suitability for secured
lending
* Providing reasoned advice where properties are not considered
suitable for secured lending due to Red Book or lenders’
requirements.

Question 6

Why do we use SWOT analysis in loan sec reports?

Answer 6

for client to check if it is a safe investment and to weigh up the risks

Question 7

How did you establish what is within a reasonable tolerance when measuring?

Question 8

what are three VPS standards.

Answer 8

VPS mandatory

VPS2 inspection- must always be carried out. Any restrictions must be identified and recorded in the terms of engagement and in the report. Proper record must be kept of inspections
VPS3 Valuation reports- states whats included
VPS4 Basis of value- make sure appropriate method for purpose of valuation,

Question 8

Why do we value on the special assumption of vacant possession?

Answer 8

giving client/bank worst case scenario - how much is the asset worth if the tenant defaulted

Question 9

How did you reflect restricted access in your opinion of market rent?

Question 10

Tell me about the clients reporting requirements for a traffic light risk assessment of the EPC rating. How did it influence your opinion of value?

Question 11

Did you account for asking the client to request an updated EPC assessment prior to lending in our valuation?

Question 12

What made it suitable for loan security? How did your advice impact your client?

Question 13

what is VPGA2 and what does it focus on?

Answer 13

guidance on secured lending NOT MANDATORY
deals with:
independence, objectivity and conflicts of interests
basis of value and special assumptions
reporting and disclosures

Question 14

conflict of interest. what must you do?

Answer 14

must declare conflicts of interests- must state no previous, current or anticipated involvement with the borrower, or prospective borrower.
‘Previous involvement’ would normally be anything within the period of 24 months preceding the date of instruction.
must act independently.
mus check if it meets rules of conduct

Question 15

should special assumptions be included in terms of engagement

Answer 15

yes

Question 15

terms of engagement

Answer 15

must incorporate if there’s a conflict of interest. any further requirements from the lender must be confirmed and record in terms of engagement. record special assumptions

Answer 16

need to enquire if recent transactions or if price of properties valuing has been agreed or on the market.

Question 17

retail parade- notting hill

what were the banks reporting requirements?

Answer 17

they required the value the property with reference to the special assumption of vacant possession, environmental issues such as floor risk, valuation method adopted and conflicts of interests

Question 18

example of special assumption

Answer 18

planning consent granted for development at the property
however will depend on the circumstances of the valuation that’s been requested and the nature of the property.

Question 19

what to include in the report

Answer 19

purpose of valuation, valuation date, conflicts, basis of value adopted, disclosure of recent transactions, suitability for secured lending, environmental issues (flood risk, contamination) disrepair, covenant strength, market rent, assumptions and special assumptions