Loan Book Review from the Chief Risk Officer

February 2, 2017

2016 Year End
Total Facilities Agreed
Loans Repaid
In Full168.4160
With Partial Losses4.74
Current Loan Book
(majority of current loan facilities are part drawn)
Impaired - partial recovery expected9.611
Average Loan to Value
(current book)
Impairment ProvisionsTotal Cumulative Provisions4.010
Remaining Balance1.86
Remaining Loan Term (months)At Inception17.77
Average Remaining8.1
Average Monthly Interest Rate1.15%


During the course of 2016 we carried out a detailed review of all lending and took a number of actions designed to further reduce the risk profile of new lending. These actions include restructuring of the lending and loan management functions, the appointment of a new leadership team and gaining board approval of an updated lending strategy which focuses the business solely on property development lending in the UK outside central London.

Loans are reviewed on a monthly basis and the potential for loss is assessed by experienced credit professionals. The review process involves regular visits to the developers’ site and the appointment of quantity surveyors who provide reporting on the progress that the developer is making and any potential overruns.

As at the end of 2016 the total cumulative provisions of £4.0m represents 1.1% of the lending facilities agreed since the business began lending in 2013. Some 68% of the total relates to three loans out of the 251 that were made since the company started lending. These loans were made in 2014 and without these the cumulative figure would have been £1.3m which would have been 0.4% of lifetime lending.

Case 1 – This was a £3.1m loan to develop 5 houses. Poor construction management, cost overruns and delays ultimately meant the project became unviable in its original form. After a necessary pause, we have stepped in and are currently building it out. There is a £0.6m provision against this loan.

Case 2 – This loan totalled £5.3m relating to four properties.   Health and safety issues occurred on site which resulted in construction delays. The properties have been sold and a loss of £1.5m was crystallised.

Case 3 – This was a £1.7m loan to develop one high value single property. Complications arose from planning irregularities and ineffective cost control. The property has now been sold, crystallising a £0.6m loss.

While we have fully provided for the losses we expect to incur, we continue to actively pursue both third party negligence claims and the personal guarantees of the borrowers. This may result in recoveries in the future but the Board does not believe it appropriate to make any allowance for these at the present time.

The cases above were outside the credit policy which exists in the firm today and as a result the Board and shareholders felt the right course was to make good these losses from shareholder capital and not pass them on to our investors.

With development finance, it is not uncommon for a project to take longer than expected. Extensions to loan facilities are sometimes required as a result of construction delays or the property sales period taking longer than expected. When a loan is expired, it does not specifically indicate that there will be a loss and it should be noted that the expiry does not affect the security that we hold over the property. Of the 63 loans made since the start of 2015, 10 (15.8%) are currently beyond the original term.


Stephen Bell, CRO


This post is issued by Wellesley Group Investors Limited solely for information purposes and does not constitute an advertisement.  This document is not and must not be construed as a solicitation of a financial instrument in any jurisdiction.

Wellesley is the trading name of Wellesley Group Investors Limited (Company No. 08478238). Wellesley Group Investors Limited is not authorised or regulated by the Financial Conduct Authority and your capital is at risk and is not covered by the Financial Services Compensation Scheme. Wellesley Group Investors Limited is registered in England and Wales and its registered office is at St Albans House, 57-59 Haymarket, London, SW1Y 4QX.

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