Loan Security Flashcards
what role does debt finance play. can you give me some examples of debt finance?
existence allows people to borrow money. insures fluidity in market, driving the market and leverage returns which also reduces risk exposure.
loan/mortgages, credit cards
What are some of the risks with secured lending for the bank (lender)?
the tenant defaults and cant pay their loan. higher risk for the bank.
how do you deal with sold off long leasehold interests?
990 year lease and the rent is peppercorn therefore i didnt capitalise the rents.
why are title searches/ report on title important for loan security?
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.
What additional elements did you include in the Terms of Engagement to comply with the Red Book?
Any previous involvement must be enclosed within terms of engagement. Any involvement past 2 years needs to mentioned.
make sure can act independently/objectively
loan amount
due diligence- environmental/ flood/ contamination reference
how do you establish if strong covenant strength?
CreditSafe
Why do we use SWOT analysis in loan sec reports?
for client to check if it is suitable for lending Gives them more info for them to base their loan terms off and assess and to weigh up the risks/rewards
How did you establish what is within a reasonable tolerance when measuring?
typically 10% but my firm use 5%
what are three VPS standards.
VPS mandatory
VPS 1 Terms of Engagement
VPS2 inspection- must always be carried out. Any restrictions must be identified and recorded in the terms of engagement and in the report.
VPS3 Valuation reports- states whats included
VPS4 Basis of value- make sure appropriate method for purpose of valuation,
Why do we value on the special assumption of vacant possession?
giving client/bank worst case scenario - how much is the asset worth if the tenant defaulted
Balham- How did you reflect restricted access in your opinion of market rent?
looked at comps found some with restricted access
Balham- what would you do if the unit was sold without an updated EPC rating however there was planning for the building to be refurbished?
i would say the property met the requirement if it was EPC complaint once done the works.
What made it suitable for loan security? How did your advice impact your client?
if property was to fall vacant client/bank would be able to sell the asset without any issues for same value bought it for
what is VPGA2 and what does it focus on?
guidance on secured lending NOT MANDATORY
deals with:
independence, objectivity and conflicts of interests
basis of value and special assumptions
reporting and disclosures
conflict of interest. what must you do?
check internal software Salesforce
Must act objectively and impartial
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.
Send email round the office to check if conflicts exist.
Must check if it meets rules of conduct
should special assumptions be included in terms of engagement
yes
what is included in terms of engagement for secured lending?
previous involvement within the last 24 months with the borrower or the property must be stated.
retail parade- notting hill
what were the banks reporting requirements?
they required the value the property with reference to the special assumption of vacant possession, environmental issues such as floor risk, valuation method adopted
example of special assumptions
planning consent granted for development at the property
Restrictive marketing period- 3 months
Vacant possession- 10-15% off value
what to include in the report
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
what does VPGA 2 stand for? and where to find in the red book?
Valuation Practice Guidance Applications. Part 5 of Red Book.
how do loan security valuations differ from accounts vals in terms of reporting?
report must contain more info regarding the instruction.
- valuation methodology adopted
- environmental considerations- flood, contamination
- suitability for loan security
- special assumptions
- lenders action points
what is a red book complaint valuation?
valuation undertaken by a qualified surveyor following RICS set of global standards.
what does limiting reliance mean? are you still liable for advice orally?
lender can only rely on the valuation for specific purposes, usually for assessing the security of a loan, and cannot use it beyond the agreed scope.
If requested to do so colliers must be notified and appropriate measures put in place.
how did you structure your fee?
scope of instruction- staff availability, if measurements involved
what liability cap did you set?
30% highest liability cap.
definition of ARY. why this approach? could you have used another method?
all encompassing yield that reflects all risk and rewards of property at that time. used for rack rented properties.
CR=MR