Loan Security Valuation Flashcards

1
Q
  • What guidance is there for secured lending valuations?
A

Red Book VPGA2 – Valuations for Secured Lending

UK National Supplement - VGPA10

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2
Q
  • What are some risks for lenders to consider before lending?
A
  • Micro and macro-economic conditions
  • Quality and condition of property
  • Functional and financial obsolescence
  • Alternate use value
  • Future expenditure requirements
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3
Q
  • Why would a property not be suitable for secured lending?
A
  • Property is uninhabitable
  • Short lease
  • Structural problems
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4
Q
  • How would a lender recover their loan if things go wrong?
A
  • Receivers step in as middleman between creditor and debtor
  • They facilitate the payment of the loan through sale, collection etc
  • Chose the best method of debt recovery
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5
Q
  • How does PII work for secured lending valuations?
A
  • Maximum amount of the property to value – SW £20M
  • Banks (HSBC) requiring minimum of £5M per claim
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6
Q
  • What are liability caps?
A
  • Insurance against suing
  • Maximum amount you can be sued for
  • SW – no cap?
  • Banks requiring
  • Bank terms example -
     Anticipated value less than £25M, liability will be capped at £25M
     Anticipated value less than £100M, liability will be capped at the loan amount of 40% of the MV
     Anticipated value greater than £100M, liability will be capped at amount agreed by the firm and lender
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7
Q
  • What is contained within a secured lending instruction?
A
  • Property
  • Bank
  • Bank’s Customer
  • Loan details (LTV – term)
  • Red Book basis
  • Timescales (generally 10 working days)
  • Environmental Report
  • Fee
  • Terms of Engagement
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8
Q
  • What is a Service Level Agreement?
A
  • Agreement defining the level of service you are expectant of
  • Lays out metrics by which service is measured
  • Includes remedies or penalties should it not be achieved
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9
Q

What does VPGA2 say about dealing with conflicts?

A
  • Must disclose any previous involvement within the last 2 years, with borrower or property
  • Valuer’s decision whether to accept instruction
  • Should there be a conflict, arrangements to manage this should be made
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10
Q

What does VPGA2 say about reporting procedure?

A
  • Valuer must provide in addition to standard valuation procedure:
    o Comment on the owner-occupied/investment nature of the property
    o Comment on the suitability of the property for mortgage purposes
    o Any circumstances in which the value could be affected
    o Acknowledge any sustainability features that will affect value
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11
Q

What is within the UK National Supplement with regards to Loan Security?

A
  • VPGA 10 - Commercial Secured Lending
  • Talks about ‘Panel Agreements’ which are a third party between lenders and surveyors to manage the instruction process
  • Mentions liability
  • Mentions reliance - only by the addressee of the report
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12
Q

How could a change in interest rates affect the property market?

A
  • Increases the cost of borrowing
  • Slows investment in property as it is a less attractive proposition
  • Return on investment affected
  • Yields move out to reflect the increased risk
  • Seen in recent times
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13
Q

What risks would rising interest rates pose to a lender?

A

Lender =
- Have to charge higher fees on the borrowing
- Less investment in property and less lending happening
- Borrowers more likely to default on payments with higher costs

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14
Q

What would you do if you were asked to value a property that you had valued for another lender one year previously?

A
  • Undertake conflicts of interest checks
  • Disclose to the bank that this had been undertaken
  • If instructed, undertake full inspections and due dilligence again to make sure nothing has changed
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15
Q

What helps you determine if a property is suitable for Loan Security?

A
  • Marketability
  • Condition and in-habitability
  • Economic Life
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