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APC > Secured Lending > Flashcards

Secured Lending Flashcards

1
Q

What does VPGA 2 in the RICS Red Book outline?

A
  • COI
  • Taking instructions
  • Basis of value
  • Assumptions and special assumptions
  • Reporting and disclosures.
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2
Q

What are typical special assumptions you might see on a secured lending valuation?

A
  • Planning consent has been granted
  • A new letting on given terms has been completed
  • There is a special purchaser, i.e. the borrower
  • The property is vacant
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3
Q

What would be included in a loan security ToE rather than normal?

A

Any conflicts of interest arising over the instruction, or interaction with the borrower or property over the last 2 years?

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4
Q

What additional criteria apply to secured lending valuations?

A
  • More detailed conflict avoidance
  • Additional reporting requirements
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5
Q

What does VPGA 2 advice do you include in your report r.e property’s security for a loan?

A
  • Comment on the suitability of the property as security for mortgage purposes, bearing in mind the length and terms of the loan being contemplated.
  • Where the terms are not known, the comment should be restricted to the general marketability of the property.
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6
Q

What is FG PI cover?

A
  • Up to £30 million
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7
Q

Office Valuation in Clapham
What rent was achieved?

A

Around £35 per sq ft - the property was self-contained, a good specification and had a secure private courtyard.

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8
Q

Office Valuation in Clapham
Was it rack-rented, over-rented?

A

It was rack-rented so I capitalised the rent using a net initial yield derived from comparable evidence?

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9
Q

Office Val in Clapham
What yield was applied?

A

We applied 8% to reflect the lack of demand for a secondary office investment. We assessed on a cap value per sq ft basis as well

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10
Q

Office Val in Clapham
What was the capital value per sq ft?

A

£460 per sq ft. The property would be more attractive to a potential owner-occupier on a VP basis. Therefore, selected the rate per sq ft at the upper end of my evidence.

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11
Q

Office Val in Clapham
What was the overall value?

A

£340,000

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12
Q

Mixed-use valuation in Croydon Caterham
What were rents achieved?

A

Zone A - £29 per sq ft
Office - £12 per sq ft

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13
Q

Mixed-use valuation in Croydon Caterham
What were yields?

A

7.25%
Some work would be required on the EPCs.

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14
Q

Mixed-use valuation in Croydon Caterham
What costs were factored into the valuation?

A

purchaser costs

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15
Q

Mixed-use valuation in Croydon Caterham
Who was the special purchaser

A

The property was being sold to the existing ground floor tenant.

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16
Q

Mixed-use valuation in Croydon Caterham
If you took into account, the special purchaser would that be Market Value?

A

No that would be Investment Value

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17
Q

Industrial Valuation -Weybridge
Rents?

A

£16 per sq ft

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18
Q

Industrial Valuation -Weybridge
Yield?

A

4.5%

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19
Q

Industrial Valuation -Weybridge
How did you assess the loan to value?

A

Typical loans are 60-65% of market value. I will factor this in when assessing loan to values and ensure the borrower isn’t inn breach of their loan to value.

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20
Q

Industrial Valuation - Weybridge
What impact did the EPC have on the valuation

A

Investment market will be less attracted to the property. Implicitly reflect this risk through a higher yield.

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21
Q

Industrial Valuation - Weybridge
What would you recommend the changes should be made to improve the EPC?

A

Switch to LED lighting
Upgrade insulation and heating systems
Have heating and lighting controls to ensure efficiency

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22
Q

Residential valuation – West End
How come you didn’t just use new build comparable?

A

Often prices can be inflated due to new build premiums or being agreed off plan. Therefore, made sure to get a mixture of evidence.

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23
Q

Residential valuation – West End
What is the discount rate for a 3-month restricted marketing period?

A

10% of Market Value?

24
Q

Residential valuation – West End
What was the appropriate marketing period?

A

I was advised by local agents that the marketing period for similar properties were in the region of 6-9 months.

25
Q

Residential valuation – West End
Why would the bank want a restricted marketing period?

A

If someone defaulted on their loan and the bank had to market the property it would be within a restricted marketing period.

26
Q

What additional lending requirements are needed in a secured lending valuation?

A

Lenders action points
Comment on the loan to value ratio
Reinstatement
Factors affecting value

27
Q

What is the current base rate?

A

5.25%

28
Q

What does property marketability mean?

A

Could the lender recover outstanding debt should they be forced to recover the property

29
Q

What is bridging finance?

A

A bridge loan is a short term loan, typically taken out for a period of 2 weeks to 3 years pending on the arrangement of a larger longer term loan

30
Q

Are there some buildings which lenders wouldn’t lend to?

A
  • Flying freeholds
  • high rise blocks
  • Unsafely built buildings
  • Short leases maybe
  • Restrictions as to use
  • flooding
31
Q

What to do with conflict of interests with secured lending?

A

Any previous involvement (within the last 2 years) with the prospective borrower or the property must be disclosed to the lender

32
Q

What are some examples that VPGA2 gives for involvement that may be a conflict?

A
  • having a longstanding relationship with the borrower or owner
  • When a valuer will gain a fee for introducing the transaction
  • If there is a financial interest in the property or holding
    -If the valuer is retained to act in the disposal or letting of the completed development
33
Q

If the valuer and client agree that any potential conflict can be avoided by introducing arrangements to manage the instruction, where should these be detailed?

A

ToE and Valuation report

34
Q

What are the different types of lenders?

A

Bridging

Mezzanine Finance - Mezzanine debt finance (also known as mezzanine debt) is a type of business loan that’s typically used when the perceived risk is substantial enough that the business is unable to secure a traditional business loan or requires a sum that a lender is unable or unwilling to provide in its entirety.

Peer to peer lending - obtain loans directly from other individuals, cutting out the financial institution as the middleman.

35
Q

What’s the difference between senior and mezzanine loan?

A

Mezzanine is seen as a higher risk and therefore higher interest rates are paid.
Senior loans will be paid back before mezzanine loans

36
Q

What information is provided by a lender in terms of loan?

A

The loan amount
When the loan expires

37
Q

What is an interest cover ratio?

A

The borrowers ability to meet debt obligations

38
Q

Why do a SWOT analysis?

A

Helps inform the lender of the wider considerations of the property and to help them carry out their own risk analysis.

39
Q

When might a bank not lend?

A

When there’s no planning for current use
If there is a very short term left on the lease
Hazardous/deleterious material present - japanese knotweed

40
Q

What is a lender specific requirement?

A

Valuing on special assumption of VP or restricted marketing period.

41
Q

What is a cash sweep?

A

If the borrower is defaulting on their loan. The bank takes the rent direct from the tenant.

42
Q

Mixed-use valuation in Croydon, why did you assume the tenant wouldn’t break?

A

Client asked you to make the assumption that the lease is still in place and the break clause would not be exercised.
I am aware that you should always value up to the first lease breal

43
Q

Mixed-use valuation in Croydon, what might the bank ask you to also make the assumption of if the lease is still in place?

A

Vacant possession

44
Q

Why is Weybridge property suitable for a loan?

A

Property had a good term certain, let to a strong covenant and was finished to a good specification/configuration which would appeal to wide range of investors/tenants

45
Q

Any weaknesses with Weybridge?

A

EPC D, lender action pointed it

46
Q

What is a special purchaser?

A

A buyer whom the asset has special value because of advantages arising from its ownership that wouldn’t have been available to other buyers?

47
Q

What does LTV mean?

A

Assessing whether the loan is suitable for the value of the property.

48
Q

Why was Croydon suitable LTV?

A

Busy high street/Double frontage
Good term certain/ covenant strength on GF
Development potential of the uppers

49
Q

Did the High-Rise nature of the put off lenders?

A

lenders may be more cautious about lending on high rise residential properties, particularly those with combustible cladding. This is because of the Grenfell Tower fire in 2017, which raised concerns about the safety of high rise residential buildings.

EWS1 form

50
Q

If a high-rise building was built before new regulations, what would you do?

A

I would advise them to seek specialist advice. I would state it as a lender action point, as a condition of the loan to seek further advice.

51
Q

What’s the significance of a 3-month restricted marketing period, what’s the significance of the word restricted?

A

This was actually the terminology used by the client
It wasn’t necessarily restricted we were just given a ‘timeframe’

52
Q

Why would they request a 3 month marketing period?

A

If the borrower defaults then lender wants to know whether there would be any difference in value if you were to sell the property within a certain time frame?

53
Q

What type of loans are these?

A

Mortgage purposes

54
Q

Under VPGA 2 what are some COI?

A
  • Having a longstanding relationship with the prospective borrower
  • When the value will gain a fee from introducing the transaction to the lender
  • If there is financial interest in the property holding or prospective borrower
  • If the valuer is retained to act in the disposal or letting
55
Q

There is a XX conflict what do you do?

A

It is the valuers discretion to decide whether or not accept the instruction.

I would act with the rules of conduct and decline the instruction

56
Q

Under VPGA 2 of the red book what additional criteria?

A
  • Disclosure of any involvement identified within the ToE
  • Valuation methodology adopted
  • Comment on environmental considerations
  • Comment on suitability of the loan
  • Any circumstances of which the valuer is aware that could affect the price.
57
Q

If a recent transaction had occurred on the property or there is a provisionally agreed price what would you do?

A

I would provide a statement as to whether that information has been taken as MV

APC (14 decks)

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