Private mortgages structure and rate.
Discussion
An investor wants to buy a couple of investment properties we own, unencumbered. We are aware that mortgages are taking a long time now and are considering offering private mortgages.
It would be a company buying them.
What structure and rate shall I suggest? Obviously they need to pay our legals.
I am thinking no more than five years, or otherwise a punitive interest rate past that point.
Any thoughts?
most important consideration is what will you do and how will you enforce non payment of the mortgage ?
It will be costly to take posession - who will cover those costs
It will take time - can you afford to be without the return you are getting by making the loan
Is the occupier a third party ?
What will you do if you end up with it in the event of non payment - you want to sell now but in that scenario you will presumably need to sell so are back to square one
It will be costly to take posession - who will cover those costs
It will take time - can you afford to be without the return you are getting by making the loan
Is the occupier a third party ?
What will you do if you end up with it in the event of non payment - you want to sell now but in that scenario you will presumably need to sell so are back to square one
Panamax said:
Furbo said:
Any thoughts?
You're proposing to lend somebody else the money to buy from you property that you already own. If they can't get a commercial mortgage in the market why would you take on a risk that nobody else wants? Ziplobb said:
most important consideration is what will you do and how will you enforce non payment of the mortgage ?
It will be costly to take posession - who will cover those costs
It will take time - can you afford to be without the return you are getting by making the loan
Is the occupier a third party ?
What will you do if you end up with it in the event of non payment - you want to sell now but in that scenario you will presumably need to sell so are back to square one
First charge. We will repossess. Legal costs will be in the contract.It will be costly to take posession - who will cover those costs
It will take time - can you afford to be without the return you are getting by making the loan
Is the occupier a third party ?
What will you do if you end up with it in the event of non payment - you want to sell now but in that scenario you will presumably need to sell so are back to square one
We will be using a commercial lawyer for the loan paperwork.
I am more interested in what people (with experience if there are any) think may be a reasonable LTV, term, interest rate.
Not huge sums of money. About £500k asset value total.
Furbo said:
I am more interested in what people (with experience if there are any) think may be a reasonable LTV, term, interest rate.
Look at the mortgage market and then ADD the additional level of risk you are taking by lending to someone who can't get a mortgage.Mortgage rates c.5%
Credit card rates c.25%
Payday loans c.100%
I can't help thinking the whole thing has a strange smell about it. Most particularly, I'd expect an "investor" to have money to invest, or at least a source of funding.
Panamax said:
Furbo said:
I am more interested in what people (with experience if there are any) think may be a reasonable LTV, term, interest rate.
Look at the mortgage market and then ADD the additional level of risk you are taking by lending to someone who can't get a mortgage.Mortgage rates c.5%
Credit card rates c.25%
Payday loans c.100%
I can't help thinking the whole thing has a strange smell about it. Most particularly, I'd expect an "investor" to have money to invest, or at least a source of funding.
Things aren’t iffy just because you don’t understand them.
All of the above but I'd be wanting 40% of the GAV up front to reflect the equity component of a typical senior loan at a decent ICR.
In the balance I'd be viewing it as a vendor bridging loan, these are generally 1-1.25% a month. I'd limit the term to 12m and have a default rate which can be charged beyond that point. Should be more than enough time for the purchaser to arrange traditional financing.
In the balance I'd be viewing it as a vendor bridging loan, these are generally 1-1.25% a month. I'd limit the term to 12m and have a default rate which can be charged beyond that point. Should be more than enough time for the purchaser to arrange traditional financing.
kiethton said:
All of the above but I'd be wanting 40% of the GAV up front to reflect the equity component of a typical senior loan at a decent ICR.
In the balance I'd be viewing it as a vendor bridging loan, these are generally 1-1.25% a month. I'd limit the term to 12m and have a default rate which can be charged beyond that point. Should be more than enough time for the purchaser to arrange traditional financing.
We offered bridging to another buyer recently who was struggling to meet an agreed deadline and yes those were the sorts of numbers.In the balance I'd be viewing it as a vendor bridging loan, these are generally 1-1.25% a month. I'd limit the term to 12m and have a default rate which can be charged beyond that point. Should be more than enough time for the purchaser to arrange traditional financing.
But with these two properties and this buyer I am prepared to be a bit more gentle and offer a longer term to boot.
Furbo said:
LooneyTunes said:
Furbo said:
otherwise a punitive interest rate past that point.
Have a read up on the enforceability (or otherwise) of punitive rates. It is one to discuss with whoever is going to structure the deal as there may be other ways around it.
LooneyTunes said:
Furbo said:
LooneyTunes said:
Furbo said:
otherwise a punitive interest rate past that point.
Have a read up on the enforceability (or otherwise) of punitive rates. It is one to discuss with whoever is going to structure the deal as there may be other ways around it.
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