Loan Security Valuation Flashcards
- What guidance is there for secured lending valuations?
Red Book VPGA2 – Valuations for Secured Lending
UK National Supplement - VGPA10
- What are some risks for lenders to consider before lending?
- Micro and macro-economic conditions
- Quality and condition of property
- Functional and financial obsolescence
- Alternate use value
- Future expenditure requirements
- Why would a property not be suitable for secured lending?
- Property is uninhabitable
- Short lease
- Structural problems
- How would a lender recover their loan if things go wrong?
- 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
- How does PII work for secured lending valuations?
- Maximum amount of the property to value – SW £20M
- Banks (HSBC) requiring minimum of £5M per claim
- What are liability caps?
- 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
- What is contained within a secured lending instruction?
- Property
- Bank
- Bank’s Customer
- Loan details (LTV – term)
- Red Book basis
- Timescales (generally 10 working days)
- Environmental Report
- Fee
- Terms of Engagement
- What is a Service Level Agreement?
- 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
What does VPGA2 say about dealing with conflicts?
- 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
What does VPGA2 say about reporting procedure?
- 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
What is within the UK National Supplement with regards to Loan Security?
- 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
How could a change in interest rates affect the property market?
- 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
What risks would rising interest rates pose to a lender?
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
What would you do if you were asked to value a property that you had valued for another lender one year previously?
- 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
What helps you determine if a property is suitable for Loan Security?
- Marketability
- Condition and in-habitability
- Economic Life