Property price fluctuation
OnStep carries all the risks of property ownership, if you had acquired the property directly. The value of your OnStep loan parts can go down as well as up, depending on the property price. The amount it will go up and down will be as if you had acquired the property with a 70% LTV mortgage, that is your equity exposure will be geared by 3.33 times of your investment. Historic performance is not a guide to future performance.
A fall in the value of the property may exceed the total interest you earn from it, and thus may lead to a capital loss even if there is no default on the loan. Some additional risks are introduced by virtue of the fact that you lack control over day-to-day decisions and timing of your exit.
We encourage you to diversify your investments across multiple properties to safeguard against excessive exposure to any one property that could incur issues such as tenant default (with rent payment) or a problem specific to that property that impacts valuation.
Lack of secondary market liquidity
Whilst you can advertise your loan parts for sale to other OnStep lenders at any point, there may not be anyone willing to buy your investment at a price that you deem reasonable (or buy it at all). In that event you will be required to wait until the borrower makes early repayment of the mortgage, through sale of the property, re-mortgage or through staircase-up. If the borrower does not make an early repayment, you will have to wait until the end of the mortgage term.
Delay in disposal or sale of the property
The loans to the company are repayable by sale or refinancing at the end of the loan term. Depending on market conditions, we may not be able to refinance or sale the property immediately on completion of the loan term and in some cases, there may also be a delay for a considerable period of time. This will result in you not getting repaid on time and possibly a loss of monthly income, if the property cannot be let during that period.
Early sale of the property
The tenant-partner can request us to sale the property early, if they need to move homes early. We will consider all such requests sympathetically and may allow the sale of a property provided that the sale price exceeds the initial investment. The timing of the sale may be unwelcome for you and may result in the crystallisation of taxable income sooner than anticipated.
Loss of monthly interest in the event of rent default
OnStep will treat its tenants sympathetically and will offer a range of forbearance options to tenants in financial difficulty. Repossession or forced voluntary sale will be considered after forbearance options are exhausted. As such, if borrowers are unable to maintain their monthly rental commitments, you may not receive your monthly interest on time and in some situations, may not receive back all the amount that is owed to you.
Potential for capital loss in the event of default
If a tenant defaults on his rental commitments and all forbearance options are exhausted, OnStep will attempt to recover the funds owed to investors through a sale of the property. Investors in the fixed mortgage (first ranking charge) will be paid out first from the sale proceeds. Any remaining funds will then go towards settling debts owed to investors in the shared equity mortgage (second ranking charge), which will include the tenant's interest. The sale proceeds may not be sufficient to cover the entire amounts owed to all investors, especially in the event of a fall in property prices, and investors may suffer a loss.