Loan Security Level 1 Flashcards
What is included in a report for secured lending according to VPGA 2?
- Disclosure of Involvement identified in ToE If valuer has no involvement, statement to that effect is to be made.
- Valuation Methodology Adopted
- If there is a Recent transaction of the Property, the extent to which that information has been accepted as evidence of value.
- Comment on the suitability for Secured Lending Purposes – bear in mind length and terms of the loan.
- Potential and demand for alternative uses, or any foreseeable changes in current mode of occupation.
- Disrepair or deleterious or harmful materials
- Environmental issues – flood risk, historic contamination.
- Past, current and future trends – volatility in the market
- Current marketability of the interest and whether this is likely to be sustainable over the life of the loan.
- Details of comparable transactions relied upon.
- Sustainability and **ESG factors **– impact market influence
According to VPGA 2 what are some examples listed in the Red Book that should be declined due to previous involvement?
- Longstanding professional relationship with prospective borrower/owner.
- If gain a fee from introducing the transaction to the lender.
- If there is a financial interest in the property
- When the valuer is retained to act in the disposal or letting of the completed development on the subject property.
What is the importance of Due Diligence for Loan Security?
Can provide an accurate valuation of the Market Value because you have:
- identified risks
- assessed market conditions
- identified potential issues
Allows you to provide advise for lenders to make informed lending decisions
Why is Market value the basis of loan security valautions?
What is largely adopted and stated within VPGA 2 (5 - bases of value and special assumptions) of the Global Red Book
When might you report a special assumption alongside the Market Value?
- Planning permission has been granted
- New letting on given terms
- Special purchaser
- Unusual volatility in market to be discounted
What is a special assumption?
A theory that is taken to be true and accepted as fact even though it is not true.
E.g. planning consent/vacant possession.
Give an example of how impacts of due diligence may impact suitability of secured lending
Incorrect planning permission may impact marketability
Increased costs incurred to get correct
What makes a good special assumption?
Relevant
Realistic
Valid
What are the 2 fundamentals that make a it suitable for loan security
The ability to get their money back i.e Capital value covers the loan
Needs to be let or good prospects of being let to generate income to service the interest of the loan (you might not have the interest amount, but you want to (as a valuer) see that the property is being let.
Why is a high LTV concerning?
Because if you had to default on your loan and you needed to sell tomorrow ie in a distressed situation, you are probably not going to get the full value for it
Why do the banks lend money?
they want a return above the base rate (4.5% currently)
What is a loan security valuation?
Assessment of a property’s value to determine its suitability as collateral for a loan.
What comment do you need in your report when you provide a valuation using a special assumption?
A comment on material difference between the reported value with and without that special assumption
