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Yarlington Treasury Services Plc September 2017

Yarlington Treasury Services plc

Valuation of Housing Stock Relating to the Issue of £120,000,000 3.41 Per Cent Secured Bonds Due 2057 (the “Bonds”) by the Issuer

savills.co.uk

Offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. Savills Advisory Services Limited. Chartered Surveyors. Regulated by RICS. A subsidiary of Savills plc. Registered in England No. 6215875. Registered office: 33 Margaret Street, London, W1G 0JD

James Tillier FRICS

E: [email protected]

DL: +44 (0) 1444 446031

M: +44 (0) 7812 965424

37-39 Perrymount Road

Haywards Heath

West Sussex

RH16 3BN

T: +44 (0) 1444 446040

www.savills.com

Dear Sirs YARLINGTON TREASURY SERVICES PLC (“the Issuer”) REPORTING COMPANY: SAVILLS ADVISORY SERVICES LIMITED VALUATION OF HOUSING STOCK RELATING TO THE ISSUE OF £120,000,000 3.41 PER CENT SECURED BONDS DUE 2057 (the “BONDS”) BY THE ISSUER In accordance with the instructions as confirmed in our letter to you dated 26 July 2017, we have inspected the property and made such enquiries as are sufficient to provide you with our opinion of value on the bases stated below. A copy of our letter of confirmation is attached at Appendix 6.

FILE Ref: HHSH398496 14 September 2017 PRIVATE & CONFIDENTIAL

(i) Prudential Trustee Company Limited Laurence Pountney Hill

London EC4R 0HH

in its capacity as Security Trustee under the security trust deed 28 July 2008 (the “Security Trust Deed”) and Bond Trustee under the

bond trust deed dated 18 September 2017

(iii) TradeRisks Limited 27 Great Winchester Street London EC2N 2JA (as Arranger and Dealer)

(ii) Yarlington Treasury Services plc in its capacity as Issuer

Lupin Way Alvington Yeovil Somerset BA22 8WN (the “Issuer”)

(v) Yarlington Housing Group Limited (“the “Original Borrower”)

mailto:[email protected]

http://www.savills.com

We draw your attention to our accompanying Report together with the General Assumptions and Conditions upon which our Valuation has been prepared, details of which are provided at the rear of our report. We trust that our report meets your requirements; however, should you have any queries, please do not hesitate to contact us. Yours faithfully

James Tillier FRICS Director RICS Registered Valuer For and on behalf of Savills Advisory Services Limited

Contents 1. Instructions and Terms of Reference 1

1.1. Instructions & Terms of Reference ....................................................................................................................... 2 1.2. Basis of Valuation ................................................................................................................................................. 2 1.3. General Assumptions and Conditions ................................................................................................................... 3 1.4. Valuation Date ...................................................................................................................................................... 3 1.5. Purpose of Valuation............................................................................................................................................. 3 1.6. Conflicts of Interest ............................................................................................................................................... 4 1.7. Valuer Details and Inspection ............................................................................................................................... 4 1.8. Extent of Due Diligence Enquiries and Information Sources ................................................................................. 4 1.9. RICS Compliance ................................................................................................................................................. 5

2. The Properties 6 2.1. The Properties ...................................................................................................................................................... 7 2.2. Environmental Considerations .............................................................................................................................. 8 2.3. Town Planning ...................................................................................................................................................... 8 2.4. Title and Tenure .................................................................................................................................................... 8 2.5. Lotting ................................................................................................................................................................... 9 2.6. Rental Income ....................................................................................................................................................... 9

3. Market Commentary 10 General Market Commentary ........................................................................................................................................... 11 3.1. General Summary ............................................................................................................................................... 11 3.2. Local Market Conditions ..................................................................................................................................... 11 3.3. Vacant Possession Values ................................................................................................................................. 12 3.4. Market Rents ...................................................................................................................................................... 12

4. Valuation Advice 13 4.1. Valuation Considerations .................................................................................................................................... 14 4.2. Existing Use Value For Social Housing - Valuation Approach (For Information) ................................................. 14 4.3. Market Value Subject to Tenancies (MV-STT) - Valuation Approach ................................................................. 18

5. Valuations 19 5.1. Valuations ........................................................................................................................................................... 20 5.2. Additional Advice ................................................................................................................................................ 20 5.3. Indicative Aggregate Market Value assuming Vacant Possession (For Information) .......................................... 20 5.4. Lotting and Value Disaggregation ....................................................................................................................... 21

6. Suitability, Liability & Confidentiality 22 6.1. Suitability as Loan Security ................................................................................................................................. 23

Appendix 1 Schedule of Properties Appendix 2 Photographs Appendix 3 Map of Stock Appendix 4 Market Commentary Appendix 5 Savills’ UK Housing Market Update Appendix 6 Confirmation of Instructions Appendix 7 General Assumptions

1 Yarlington Treasury Services Plc – Valuation of 48 properties in Winsham, Somerset

1. Instructions and Terms of Reference


1.1. Instructions & Terms of Reference

Further to instructions received from the Original Borrower (confirmed by us by letter dated 26 July 2017) to value the Properties in order to assess its level of security, we now have pleasure in reporting to the above addressees.

In completing this exercise, we have: a) agreed a full set of property schedule data with the Original Borrower; b) discussed details as to our approach and methodology; and c) completed our own inspections, research and analysis.

The above has enabled us to arrive at the valuation assumptions which we have adopted in the valuations and final reported figures herein. This Report has been prepared in accordance with the RICS Red Book (as defined herein). The valuations are prepared on this basis so that we can determine the value recoverable if the charges over the properties which are the subject of this Report (the “Properties”) were enforced as at the date of this Report.

We have reviewed the Certificate of Title prepared in respect of the Properties and has been taken into account in preparing the Valuation.

The values for residential properties reported in the Borrower’s accounts are prepared for that purpose on the basis of Existing Use Value for Social Housing by reference to the entire stock of the organisation’s dwellings valued as a single lot, in contrast with the valuation in respect of this Report which only represents the value to a funder-in-possession of a portion of the stock on the basis of Market Value Subject to Tenancies.

As such different assumptions would be applied. Disaggregated shares for individual dwellings derived from differently sized portfolios, and valued for different purposes, may vary, resulting in any comparisons being inaccurate.

1.2. Basis of Valuation

In relation to Properties which may be disposed of by a mortgagee-in-possession on an unfettered basis (meaning subject to tenancies but otherwise vacant possession and not subject to any security interest option or other encumbrance or to any restriction preventing its sale to, or use by, any person for residential use):-

(i) the Market Value of such properties for loan security purposes firstly reflecting the fact or (where not the case) making an assumption as to the fact that the properties are subject to existing tenancies that grant security of tenure to the occupational tenant. Our valuation will refer to this basis of value as “MV–STT" or “market value, subject to tenancies”; and

In relation to Properties other than those specified in paragraph 1.2.(i) above:-

(ii) The Existing Use Value for Social Housing (“EUV-SH”) of such properties for loan security purposes. In accordance with your instructions, we have provided an assessment of the Market Value (“MV”) of the Properties subject to the Tenancies and the Existing Use Value for Social Housing (“EUV-SH”) of the tenanted properties. Market Value is defined by the Royal Institution of Chartered Surveyors (“RICS”) at VPS4 1.2 as:- “The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion.”


Existing Use Value for Social Housing is defined by the Royal Institution of Chartered Surveyors (“RICS”) at UKVS1.12 as:- “Existing use value for social housing (EUV-SH) is an opinion of the best price at which the sale of an interest in a property would have been completed unconditionally for a cash consideration on the valuation date, assuming:

a) a willing seller

b) that prior to the valuation date there had been a reasonable period (having regard to the nature of the property and the state of the market) for the property marketing of the interest for the agreement of the price in terms and for the completion of the sale

c) that the state of the market, level of values and other circumstances were on any earlier assumed data of exchange of contracts, the same as on the date of valuation

d) that no account is taken of any additional bid by a prospective purchaser with a special interest e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion f) that the property will continue to be let by a body pursuant to delivery of a service for the existing use g) that at the valuation date any regulatory body in applying its criteria for approval would not unreasonably fetter the

vendor’s ability to dispose of a property to organisations intending to manage their housing stock in accordance with that regulatory body’s requirements

h) that properties temporarily vacant pending re-letting should be valued, if there is a letting demand, on the basis that the prospective purchaser intends to re-let them, rather than with vacant possession and

i) that any subsequent sale would be subject to all the same assumptions above”

1.3. General Assumptions and Conditions

All our valuations have been carried out on the basis of the General Assumptions and Standard Conditions set out in Appendix 7 of this report.

1.4. Valuation Date

Our opinions of value in respect of the Properties are effective as at the date of this Report (the Effective Date), using the property data supplied to us. The importance of the date of valuation must be stressed as property values can change over a relatively short period of time. 1.5. Purpose of Valuation

This Valuation is required for security purposes in connection with the proposed issue by the Issuer of the Bonds. This Report is issued for the benefit of the addressees and for the inclusion in the Prospectus for the Bonds to be issued by the Issuer and may only be used in connection with the transaction referred to in this Report and for the purposes of the Prospectus. We hereby give consent to the publication of this Report within the Prospectus and accept responsibility for the information contained in this Report. To the best of our knowledge and belief (having taken all reasonable care to ensure that such is the case) the information given in this report is in accordance with the facts and does not omit anything likely to affect the import of such information.


1.6. Conflicts of Interest

We are external valuers and not aware of any conflict of interest in respect of the Properties or the Issuer preventing us from providing you with an independent valuation of the Properties in accordance with the RICS Red Book. 1.7. Valuer Details and Inspection

The due diligence enquiries referred to below were undertaken by James Tillier FRICS. The valuations have also been reviewed by Matthew Sale BSc (Hons) MRICS.

In accordance with the requirements of the RICS Red Book, we confirm that this Report has been prepared by James Tillier FRICS and countersigned by Matthew Sale BSc (Hons) MRICS (RICS Registered Valuers) who have relevant experience to report on this property type. Savills Advisory Services Ltd carried out inspections of the stock on 29 June 2017. Following inspection, market research and comparable sales and lettings evidence was compiled enabling us to build up a detailed knowledge of the situation of the housing stock and marketability. We have considered the general condition of the stock, the level of fixtures and fittings and have derived our assumptions accordingly.

All those above with MRICS or FRICS qualifications are also RICS Registered Valuers. Furthermore, in accordance with VPS 3.7, we confirm that the aforementioned individuals have sufficient current local and national knowledge of the particular market and the skills and understanding to undertake the valuation competently.

1.8. Extent of Due Diligence Enquiries and Information Sources

The extent of the due diligence enquiries we have undertaken and the sources of the information we have relied upon for the purpose of our valuation are stated in the relevant sections of our report below.

We have been provided by the Original Borrower with a schedule of the Properties detailing the addresses and current rents as set out in the property schedule incorporated in Appendix 1. The extent of the enquiries we have undertaken and the sources of the information we have relied upon for purposes of our valuation are stated in the relevant sections of our report below. Savills Advisory Services Limited accepts responsibility for the information contained in this Report and, to the best of its knowledge (having taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information. The figures and data relating to: (a) Gilt and Bond yields referred to in paragraph 4.2.3 of the Report were obtained from the publication “Social Housing”

Volume 29, No. 7, July 2017. We have also reviewed the final form certificate of title (the “Certificate of Title”) for the Properties issued by Trowers and Hamlins LLP dated on or about the date of this valuation report and can confirm that our valuations fully reflect the disclosures contained therein. In particular, in respect of each unit which we have valued on the basis on MV-STT, we confirm that (based on our review of the Certificate of Title) such units may be disposed of by a mortgagee-in-possession on an unfettered basis (meaning subject to existing tenancies but otherwise with vacant possession and not subject to any security interest, option or other encumbrance or to any restriction preventing its sale to, or use by, any person for residential use).


1.9. RICS Compliance

This report has been prepared in accordance with Royal Institution of Chartered Surveyors’ (“RICS”) Valuation – Global Standards 2017 incorporating the IVSC International Valuation Standards issued June 2017 and effective from 1 July 2017 (the “Red Book”). In particular, where relevant, in accordance with the requirements of Valuation Professional Standards VPS1: Terms of Engagement, VPS3: Valuation Reports, UKVS1: Valuations for financial statements, UKVS1.13: Valuations for Registered Social Landlords, UKVS3: Valuations for Residential Property, UKVS3.11 Affordable Rent and Market Rent, UK Appendix 1: Accounting concepts and terms used in FRS 15 and SSAP 19 and UK Appendix 13: Valuation of registered social housing providers' stock for secured lending purposes. This report also complies with the International Valuation Standards where applicable.


2. The Properties


2.1. The Properties

2.1.1. Location and Description

In total there are 48 properties comprised in the instruction which are situated in the village of Winsham, Somerset in the locations detailed in Table 1 below. Table 1: Stock Location by Road

Type Houses & Bungalows Total

Bakersfield, Winsham 5 5

Davies Close, Winsham 36 36

Western Way, Winsham 7 7

Total 48 48 Source: The Original Borrower

The portfolio is located in an area of established traditional ex-Local Authority housing on the edge of a small village in south-west Somerset. It is approximately 4 miles south-east of the nearest town, Chard.

The properties are in an estate of similar houses of typical style and on the north-west corner of an otherwise very traditional style Somerset village. The properties in the immediate area fall within an age group of circa 1950 – 60s, the majority being circa 1965 - 70. Generally, the units have garden areas and on-street parking.

Two-thirds of the stock is identified and designated by the Original Borrower as sheltered or Independent Living accommodation and available for occupation by those aged 50 and over. There are no communal facilities on site and no resident manager. None the less, the bungalows are of a design, layout and size particularly suited to sheltered/Independent Living accommodation and we have assumed in our valuation that this use is likely to be continued in the event of a disposal. A selection of photographs is at Appendix 2. The location of the stock is shown by the map at Appendix 3.

2.1.2. Property Types

The properties can be summarised by type and tenure as follows: Table 2: Property Types and Tenure

Type Houses & Bungalows Total

General Needs – Rented 16 16

Sheltered – Rented 32 32

Total 48 48 Source: The Original Borrower

Please refer to Appendix 1 for a full list of the properties including property types and rental data.


2.1.3. Condition As instructed, we have not carried out a structural survey. However, we can comment, without liability, that during the course of our inspections for valuation purposes, we observed that the Properties appear to be generally in fair condition. Apart from any matters specifically referred to in this report, we have assumed that the Properties are free from structural faults, or other defects and are in a good and lettable condition internally. The report is prepared on this assumption. 2.1.4. Services No detailed inspections or tests have been carried out by us on any of the services or items of equipment, therefore no warranty can be given with regard to their purpose. We have valued the Properties on the assumption that all services are in full working order and comply with all statutory requirements and standards.

2.2. Environmental Considerations

We have valued the Properties on the assumption that they have not suffered any land contamination in the past, nor are they likely to become so contaminated in the foreseeable future. However, should it subsequently be established that contamination exists at the Properties, or on any neighbouring land, then we may wish to review our valuation advice. We have assumed there to be no adverse ground or soil conditions and that the load bearing qualities of the site are sufficient to support the buildings constructed thereon. 2.3. Town Planning

From our review of the final form certificate of title (the “Certificate of Title”) for the Properties issued by Trowers and Hamlins LLP we can confirm that there are no pending planning applications or other planning issues or conditions that would adversely affect the valuation of the Properties.

The existence of all necessary Town Planning and Building Regulation approvals and any remaining NHBC cover or similar building warranty, where appropriate, have also been confirmed in respect of the Properties, with insurances put in place where required.

2.4. Title and Tenure 2.4.1. Title We have been provided with the details of Title, sent to us by Trowers & Hamlins LLP dated on or around the date of this report. We can confirm that based on the information provided to us that each property has good and marketable title and that there are no restrictions or covenants that would adversely affect our opinion of value. Our valuation reflects our opinion of value in aggregate of the freehold interests (in each case) of the Properties owned by the Issuer and identified as the subject of this Report and scheduled at Appendix 1. The Certificate of Title discloses that no Properties are held leasehold. All stock is unrestricted and has therefore been valued at Market Value Subject to Tenancies. We provide a valuation on the basis of Existing Use Value - Social Housing for information purposes only.


2.4.2. Tenancies The Original Borrower’s standard tenancy agreements are all assumed to be in a standard format. Under the assured tenancy agreement rent can be reviewed once a year to an open market level. The tenant has the usual rights of appeal to the local Rent Assessment Committee. Under the secure tenancy agreement rent is reviewed every two years with reference to the local Rent Officer. 2.5. Lotting We have valued the Properties as a portfolio assuming disposal as a single lot. 2.6. Rental Income The gross rental income currently produced by the Properties, before deductions, is shown in the following table, broken down by tenure. Table 3: Gross Rental Income (correct as at July 2017)

Tenure Type Gross Rent £ pa Social Rent 227,760

Total 227,760 Source: The Original Borrower

Average net rent levels, on a 52-week-year basis, are shown below, as derived from the property schedule sent to us by the Original Borrower: Table 4: Rent Levels 2017/18 £ per week net

Property Type Current Rent £ Formula Rent £ General Needs Houses 96.09 96.09

Sheltered Houses 88.82 88.82 Social Rented Average 91.24 91.24

Source: The Original Borrower


3. Market Commentary


General Market Commentary

3.1. General Summary

After steady house price growth in 2015/16, Savills’ most recent house price forecasts show broadly static house prices in 2017, picking up again from 2018. The forecast for the South-West is shown in the table below. Table 5: Nominal House Price Forecasts – Mainstream Markets

Region 2017 2018 2019 2020 2021 UK 0.0% 2.0% 5.5% 3.0% 2.0%

South-West 1.0% 2.0% 6.0% 3.0% 1.5% Please refer to Appendix 4 for a full, detailed market commentary. 3.2. Local Market Conditions

The tables below show the change in average prices recorded by the Land Registry for the last five calendar years looking at “all property” and “combined terraced and semi-detached houses”. The first table shows a rise in values of under 1.5% for 2016 and the second a rise of 5.6%. The second table also shows there has been around a 5.5% fall in transactions in 2016 in the terraced and semi-detached market. This demonstrates a reasonably strong market although with reducing sales and relatively modest recent price growth. Table 6: Sales Volume and Average Property Price – South Somerset

Year Average Price Sales Volume Price Change Year on Year 2012 £206,133 2,197 -0.68% 2013 £209,058 2,558 1.42% 2014 £218,090 3,086 4.32% 2015 £219,644 3,084 0.71% 2016 £222,704 3,073 1.39%

Source: Land Registry

Table 7: Sales Volume and Average Property Price – South Somerset

Year Sales Volume Annual Change Average Price Terrace & Semi detached Annual Change

2012 1,261 -1.71% £167,886 -0.27% 2013 1,481 17.45% £166,058 -0.78% 2014 1,703 14.99% £177,433 7.13% 2015 1,759 3.29% £182,253 2.38% 2016 1,663 -5.46% £192,349 5.61%

Source: Land Registry

The Land Registry data suggests that while values continue to grow, although at a more conservative level than in recent years, sales volumes have declined as affordability and investor appetite has settled which could be a sign of falling confidence in the market. Turnover dipped markedly in 2016 primarily as a result of uncertainty over Brexit. Discussions with local agents suggests that stock of properties on their books is low and supply is a problem, with vendors holding out until there is more certainty in the market; there does, however, still seem to be buyer appetite.


In the lettings market a shortage of supply means that prices continue to rise across the board. This is an issue that could worsen over the medium term - as landlords are expected to decrease their portfolios over the next three years.

We consider that there would be satisfactory demand for the properties for both sale and rental.

A detailed Market Commentary and Housing Market Up-date are attached at Appendices 4 and 5.

3.3. Vacant Possession Values

Table 8 below shows our assessment of the average vacant possession values for the properties included within the valuation summarised by type and bedroom number:

Table 8: Vacant Possession Values

Savills Property Type Bedrooms Average VP Value

Houses and Bungalows 1 £105,000 2 £130,000 3 £175,000

Average VP value of all Houses & Bungalows £121,875 Source: Savills

3.4. Market Rents

Table 9 below shows our assessment of the average rental values for the properties included within the valuation summarised by type and bedroom number:

Table 9: Average Market Rents (pw)

Savills Property Type Bedrooms Average Market Rent (pw)

Houses and Bungalows 1 £127 2 £144 3 £162

Average Market Rent of all Houses & Bungalows £136 Source: Savills


4. Valuation Advice


4.1. Valuation Considerations

4.1.1. Welfare Reform and Work Act 2016

Under the Welfare Reform and Work Act 2016 rents across the sector are reducing by 1% each year for four years from 2016. These rent reduction provisions came into effect on 22 March 2016. We have considered the impact when preparing our valuation but in summary we do not believe that as they stand they have a significant effect on current levels of loan security value on EUV-SH. Although current levels of loan security valuation are broadly unaffected, valuations in future years will reduce relative to where they would have been without these proposals. This is because starting rent levels will be lower. Valuations on MV-STT are unaffected by the rent reductions. 4.1.2. Housing and Planning Act 2016

Under the provisions of the Housing and Planning Act 2016 deregulation of the housing sector gives greater freedom to housing providers to dispose of and manage their property assets. The deregulation provisions came into effect on 6 April 2017. As a result S133 of the Housing Act 1988, which required consent to be obtained prior to disposal of transferred property, is no longer effective. At the date of this valuation – as a result of the Housing & Planning Act – transferred property may be valued on the basis of Market Value Subject to Tenancies (MV-STT) where lenders requirements and legal title permit. The deregulation provisions contained in the Act could potentially also affect the value of social housing assets where valuations are undertaken on the basis of Existing Use Value for Social Housing – a valuation basis which seeks to reflect the value of the properties if sold within the sector. At present it is too early to tell how and if values will be affected. Whether or not valuations on EUV-SH will change will depend on how housing providers respond to the changes and whether or not their behaviour, in relation to the management and disposal of their housing stock, alters. However if behaviour does change the impact on levels of EUV-SH is likely to be positive. 4.2. Existing Use Value For Social Housing - Valuation Approach (For Information)

4.2.1. Approach to EUV-SH

EUV-SH for loan security assumes the property will be disposed of by a mortgagee-in-possession to another Registered Provider (“RP”) which will continue the use of the properties for social housing. These organisations will calculate their bid according to their projected income and outgoings profile which they would estimate the properties would produce under their management. This basis assumes rents will remain affordable to those in low paid employment and that all vacant units will be re-let on the same basis. We consider that the appropriate method of valuation is to use a discounted cash flow (“DCF”). The DCF allows us to project rental income and expenditure over the term of the cash flow to arrive at an annual surplus or deficit, which is then discounted to a net present value. However it is also necessary to consider comparable transactional evidence where available.


4.2.2. Principal DCF Variables

The DCF assumptions are derived from information received from the RP and economic data. The table below sets out our principal assumptions. More detailed discussion on discount rate, adopted rent levels and rental growth is contained in the following sections. Table 10: DCF Assumptions

DCF Assumption Amount Year Unit Source

Current rent 91.24 Current £ per week RP

Maximum affordable “convergence” rent 95.91 Current £ per week Savills

Voids and bad debts 2.5 All Years % of Debit RP / Savills

Management costs 200 – 250 All Years £ pu pa Savills

Cyclical & Responsive maintenance. costs 800 – 875 All Years £ pu pa Savills

Programmed Maintenance costs 750 – 850 All Years £ pu pa Savills

CPI Inflation 2.50 2.25 2.00

Yrs 1-2 Yr 3

Yr 4+ % real pa Savills

Programmed cost inflation (nominal) 0.50 % real pa Savills

Responsive cost inflation (nominal) 1.00 % real pa Savills

Maintenance cost inflation (nominal) 1.00 % real pa Savills

Discount Rate 5.25 – 5.75 All Years % real pa Savills Source: Savills

4.2.3. Discount Rate

There is no hard-and-fast rule for determining the most appropriate rate to be adopted in a discounted cash flow. The discount rate is probably the most important variable in the model since it determines the net present value of future predicted income and expenditure flows for the property in question. Our role as valuers is to interpret the way in which potential purchasers of the stock would assess their bids. The market for this stock will be within the RP sector. Effectively, the discount rate is representative of both the long-term cost of borrowing for an acquiring organisation and the risks implicit in the property portfolio concerned. The current level of long-term interest rates and the overall cost of funds must be reflected in our valuation. In addition to considering the cost of funds, we also need to make an allowance for the risk which attaches to our cash flow assumptions – some of which may be subject to a higher degree of risk than those generally made in the business plans. The margin for risk needs to be considered on a case-by-case basis, having regard to the nature of the stock. Currently the yield on 30-year Gilts is around 1.88%. This is, in effect, the risk-free discount rate. Yields on Housing Association long-dated, rated and un-rated bonds are typically around 2.00% to 3.00% (Source: Social Housing, July 2017). Since the July 2015 Budget there has been limited activity in the Bond market with public-rated issues only from Metropolitan Funding plc (4.125%, September 2015) and London & Quadrant Housing Trust (3.75%, October 2015 and 2.625% May 2016). The spreads above their reference gilts ranged from 1.67% to 1.35% respectively. More recently retained bonds were sold by Hyde Martlet Homes in April 2017 at an all-in cost of 3.05% and Pennaf Group in June 2017.


The supply of traditional long-term (25- or 30-year) funding has diminished and is only available from a handful of lenders. Shorter-term traditional funding (5 – 7 years) and funding with in-built options to re-price margins at a future date are commonplace, introducing a new level of re-financing risk to business plans. Notwithstanding this, new business plans are typically being run at nominal interest rates at ‘all-in’ long-term cost of funds including margin of around 5%, reflecting the availability of long-term finance from the capital markets but also future refinancing risk. Given the sustained reduction in funding costs our view is that for good quality, generally non-problematical stock, a discount rate between 4.75% and 5.5% real is appropriate (over a long-term CPI inflation rate of 2%). A greater margin for risk will be appropriate in some cases. We would expect to value poorer stock at rates around 5.5% to 6.25% real. On the other hand, exceptional stock could be valued at rates around 4.25% to 4.75% real. We would stress our cash flows are run in perpetuity and not over 30 yrs. We have adopted discount rates of 5.25% real for the General Needs rented stock and 5.75% for the Sheltered stock, over an assumed CPI inflation rate of 2.0%. These rates are applied over the cash flow run in perpetuity. For your information our valuation implies a real discount rate over a 30-year cash flow ranging between 3.47% and 3.8%.

4.2.4. Social Rents - Savills “Convergence” Rents and Rental Growth

Registered Providers are required to set their Social Rents in accordance with the current Rent Standard issued by the Homes and Communities Agency (‘HCA’) and revised in 2015, as amended by The Social Housing Rents Regulations 2016. The Guidance and the Regulations set out a formula for calculating Social rents. Service charges are charged over and above the rents and should reflect the services being provided to tenants. Provisions introduced by the Welfare Reform and Work Act 2016 have modified the original rent increase provisions of the Rent Standard Guidance. Instead of increasing at CPI plus 1% per annum, rents for general needs properties will have to reduce by 1% each year from 2016 to 2019. Mortgagees-in-possession and their successors-in-title are exempted from the rent setting and increase/reduction provisions of the Rent Standard and the Welfare Reform and Work Act. In theory, therefore, a purchaser could base a bid for the properties on rents up to open market levels as permitted under the terms of the tenancy agreements. However any RP purchaser would need to set rents that are consistent with its objectives as a social housing provider. We therefore believe that a purchaser in a competitive transaction is likely to set rents at a level which they consider are the maximum affordable to those in low paid employment locally. We assume they would intend to charge such rents for new tenants and increase existing rents to a sustainable and affordable rent over a reasonable period. The average rents across the charged stock are set out below, along with the current formula rents and our assessed sustainable affordable rent or “convergence” rent. We have adopted the convergence rent in our valuation.


Table 11: Current, Formula and Convergence Rents (£ pw – 52 Weeks)

Type Estimated

Tenant Household

Incomes Net Rent 2017/18 Formula

Rent 2017/18 Savills

Convergence Rent 2017/18

Savills Convergence Rent

Afford. Ratio 2017/18 %

Market Rent 2017/18

House £334.07 £91.24 £91.24 £95.91 28.71% £136.38

Grand Total £334.07 £91.24 £91.24 £95.91 28.71% £136.38 Source: The Original Borrower & Savills

We have assumed all rents will converge to our convergence rent in 3 - 4 years time. The annual rent increases have been limited to a maximum of 5% per annum nominal. In the long term, in order to maintain consistent levels of rent affordability, the maximum possible rate of rent growth will be growth in local household incomes which is currently predicted to be 2.95% pa over the next 10 years in this area. We have therefore assumed that after they have converged rents will increase at CPI + 1% per annum. We have relied on the current and formula rents supplied by the Original Borrower in carrying out this valuation. We have not carried out any validation of or research into the rents supplied. 4.2.5. Sales Between Registered Providers – Transactional Evidence

Until recently, evidence of sales between RPs was extremely limited – most transactions were simple transfers of engagements. However in recent years there has been a growing body of transactional evidence from competitive sales between RPs of tenanted stock. The evidence confirms RPs have a consistent tendency to pay a higher sums for some social housing portfolios than would be suggested by traditional, purely cash flow driven, EUV-SH valuations. We have been heavily involved in this emerging market and have a database of transactions covering circa 50,000 units. Although the body of evidence is relatively small compared to the total RP stock in the UK and the market is still immature, we are able to derive a view of the prices achieved for certain kinds of stock and lot sizes. Assuming a sensible lotting of units in smaller batches of circa 100 units, bids between 5% to 30% above traditional EUV-SH levels are common for more modern stock in reasonable proximity to amenities. In contrast, it is apparent that for lots exceeding around 200 properties the prices achieved appear to be in line with the traditional, cash flow approach to EUV-SH. In this case, given the relatively small number of units in a single location we have valued the properties assuming a sale as a single lot and to reflect the higher bids that we consider would be achieved for a portfolio of this size. We have looked at the sales evidence in the South-West region, with particular regard to sales within the last five years. It is apparent that there is an active market of sales in Somerset achieving average gross yields of between 6.08% and 11.61% and an average price of between 113.78% and 123.24% of the “base” EUV-SH. We have considered the available evidence and have reflected it in our valuation.


4.3. Market Value Subject to Tenancies (MV-STT) - Valuation Approach

4.3.1. Valuation Methodology - MV-STT

We assess the MV-STT in two ways; firstly by applying a discount to Market Value with Vacant Possession (“MV-VP”) and secondly by applying a yield to rental income. The valuation of properties and portfolios subject to Assured and Secure tenancies is carried out with reference to comparable evidence from the sales of similar tenanted portfolios and individual units, and sold subject to Protected Tenancies or Assured Shorthold Tenancies. There is an established body of evidence from portfolios traded on the open market to which we can refer. Investors tend to base their bid on their ability to “trade out” individual units at Market Value assuming vacant possession over time. In locations where there is a limited market or where a property is difficult to trade, owing to style or market conditions, investors will base their bid on rental return compared to capital cost. The discount to MV-VP ranges from 10% for prime property to 50% where market conditions are difficult. Typical rates are around a 20% to 30% discount to MV-VP for properties subject to AST tenancies. The yield applied to net income varies from 5% or less for prime property, to 7% or more for poorer locations. This equates to a yield on gross income (before deductions for management, maintenance & voids) of between 7% to 10% and possibly higher for sheltered accommodation. The Residential Investment market is currently reasonably active and having discussed the portfolio with agents active in the market, we expect that in general, the properties would attract good demand if brought to the market. There is little directly comparable evidence of residential investment sales in the South-West region although a portfolio of 23 units in Gloucestershire sold in July 2016, achieving a net initial yield of 3%. The discount and yield applied in our valuations has been adjusted to reflect the additional security of tenure from which RP tenants benefit.

4.3.2. Principal Assumptions – MV-STT

We have considered the above in arriving at our valuation. The yield and other principal assumptions adopted are set out below.

Table 12: MV-STT Assumptions

Variable Variable Year Amount

Voids and bad debts % of Rent Debit p.a. All years 5.00

Management % of market rent All years 8 - 10

Maintenance % of market rent. All Years 15 - 20

Net Yield Applied % All Years 5.8 – 7.1

Source: Savills


5. Valuations


5.1. Valuations

Our valuations are as follows. Please note that this summary must only be read in conjunction with the rest of this report and all Appendices.

5.1.1. Market Value Subject to Tenancies (MV-STT)

The aggregate MV-STT of the freehold or Long Leasehold interest in the 48 units for loan security purposes is: £3,763,500 (Three million, seven hundred and sixty-three thousand, five hundred pounds)

5.1.2. Existing Use Value – Social Housing (EUV-SH) (For Information)

The aggregate EUV-SH of the freehold or Long Leasehold interest in the 48 units for loan security purposes is: £2,806,500 (Two million, eight hundred and six thousand, five hundred pounds)

5.2. Additional Advice

5.2.1. Lending Against MV-STT

With reference to section 2.4 on Tenure, it is essential that before lending on MV-STT confirmation be obtained that the properties are capable of being let at a Market Rent, or disposed of free from restrictions (as to which we refer you to the final paragraph of section 1.8). If there are enforceable “Housing Restrictions” in title, planning approval, s.106 agreements or by separate Nomination agreements, that, for example, limit disposal only to Registered Providers or contain binding contractual nominations, then the correct valuation basis is EUV-SH and not MV-STT. Current rental income (as advised by the Original Borrower and subject to comments above) is set out at Appendix 1 but we make no warranty that the current income is sufficient to support lending against an MV-STT basis either on individual valuation groups or against all the Properties. 5.3. Indicative Aggregate Market Value assuming Vacant Possession (For Information)

The aggregate Market Value of 48 units is £5,850,000. This assumes the Properties are available with vacant possession, but in fact, the Properties are subject to tenancies. This figure cannot therefore be regarded as a valuation suitable for lending. It is thus provided for illustrative purposes only and given with nil reliance. Please note that the inclusion of the MV-VP valuation figures in this Report is purely for information purposes only (and specifically not to be relied on or represented for any purpose connected with loan security or similar purposes), being an estimate of the aggregate Market Value, of the Properties (as defined below), making assumptions: • that the Properties are available for sale at the date of valuation with full vacant possession (notwithstanding that the Properties are in reality occupied by tenants with probable security of tenure); • that the Properties would be free from any encumbrances that limit their use to affordable housing as mentioned above.


Given these assumptions, the MV-VP valuation figures are significantly higher than the EUV-SH and MV-STT valuation figures and hence the MV-VP figures provide, for information, a broad reference point for contrast to the EUV-SH and MV-STT valuation figures. 5.4. Lotting and Value Disaggregation

We have valued the properties as a single lot. As a result we have not assessed individual valuations for each property. We have, however, provided a disaggregation of the overall valuation figures by reference to our assessment of the vacant possession value and these figures are shown on the property schedule at Appendix 1. It is very important to note that the per unit figures shown in the schedule should not be regarded as individual valuations of the properties. They are provided as indicative figures for administrative purposes only. They should not be used for any other purpose, including disposals or re-assessment of security, without our prior written approval.

Yarlington Treasury Services Plc – Valuation of 48 properties in Winsham, Somerset 22

6. Suitability, Liability & Confidentiality

Yarlington Treasury Services Plc – Valuation of 48 properties in Winsham, Somerset 23

6.1. Suitability as Loan Security

6.1.1. Suitability as Security

We have considered each of the principal risks associated with these Properties within the context of the wider property market and these risks are reflected in our valuation calculations and reported figures as appropriate. Overall, we consider that the Properties provide good security for a loan secured upon them, which reflects the nature of the Properties, our reported opinions of value and the risks involved.

~~~~~~~~~~~~~~~~~~~~

We trust the above report is acceptable for your purposes, should you have any queries, please do not hesitate to contact us. Yours faithfully

James Tillier FRICS Matthew Sale BSc (Hons) MRICS Director Associate Director RICS Registered Valuer RICS Registered Valuer For and on behalf of Savills Advisory Services Limited For and on behalf of Savills Advisory Services Limited

Yarlington Treasury Services Plc Valuation of Housing Stock for Loan Security Purposes


Appendices



Appendix 1 Property Schedule

YARLINGTON TREASURY SERVICES PLC

VALUATION OF HOUSING STOCK FOR LOAN SECURITY PURPOSES

PROPERTY SCHEDULE - SEPTEMBER 2017

Western Way Winsham Somerset TA20 4JH General Needs H 2 5 £459.57 £423,850 £299,700Western Way Winsham Somerset TA20 4JH General Needs H 3 2 £198.07 £228,220 £129,170Bakersfield Winsham Somerset TA20 4JN General Needs H 3 3 £299.03 £342,330 £195,010Bakersfield Winsham Somerset TA20 4JN Sheltered H 1 2 £176.44 £133,780 £111,980

Davies Close Winsham Somerset TA20 4JL General Needs H 2 3 £278.77 £254,310 £181,780Davies Close Winsham Somerset TA20 4JL General Needs H 3 3 £301.92 £342,330 £196,890Davies Close Winsham Somerset TA20 4JL Sheltered H 1 28 £2,471.08 £1,872,920 £1,568,310Davies Close Winsham Somerset TA20 4JL Sheltered H 2 2 £194.66 £165,620 £123,560

Aggregate EUV-SH (For

Information)

Property Type

Aggregate Current Rent pw 2017/18

Bedrooms Aggregate MV-STT

No. of PropertiesActivity TypeAddress 3 PostcodeAddress 1 Address 2



Appendix 2 Photographs

Yarlington Treasury Services Plc – Valuation of 48 units in Winsham, Somerset Page 1 of 3

Yarlington Treasury Services Plc

48 units in Winsham, Somerset

Bakersfield, Winsham Bakersfield, Winsham

Bakersfield, Winsham Bakersfield, Winsham

Davies Close, Winsham Davies Close, Winsham


Davies Close, Winsham Western Way, Winsham

Western Way, Winsham Western Way, Winsham

Western Way, Winsham Western Way, Winsham



Appendix 3 Map of Stock

YARLINGTON TREASURY SERVICES PLC

MAP OF THE STOCK – 48 UNITS IN WINSHAM, SOMERSET



Appendix 4 Market Commentary

Market Bulletin July 2017

savills.co.uk 1

Housing Market Bulletin July 2017 National Overview House prices: UK annual house price growth rose to 3.1%, slightly higher than the 2.1% recorded in May

and is a sign that the housing market is regaining momentum. After two sluggish months, annual price growth has returned to the 3-6% range that had been prevailing since early 2015. Source: http://www.nationwide.co.uk/about/house-price-index/headlines

Mortgage Market: The Council of Mortgage Lenders estimates that gross mortgage lending reached £20.1 billion in May. This is a 12% increase on both April last month and on May last year, in which £17.9 billion was advanced.

Source: https://www.cml.org.uk/news/press-releases/

Construction: The IHS Markit/CIPS UK Construction PMI fell to 54.8 in June of 2017 from 56 in May, which was the highest since December of 2015. Figures came slightly below market estimates of 55 as business activity, new work and employment expanded less amid renewed risk aversion among clients, reflecting concerns about the economic outlook and political uncertainty. In addition, construction companies were the least optimistic about their near-term growth prospects since December 2016. Construction Pmi in the United Kingdom is reported by Markit Economics.

Source: http://www.tradingeconomics.com/united-kingdom/construction-pmi

Economy: Change in gross domestic product (GDP) is the main indicator of economic growth. In Quarter 1 (Jan to Mar) 2017, UK GDP was estimated to have increased by 0.3%. The services aggregate was the main driver to the slower growth in GDP, contributing 0.23 percentage points. Production, construction and agriculture contributed 0.04, 0.01 and 0.00 percentage points to the headline figure respectively. The main contributor to the slowdown in services was the distribution, hotels and restaurants sector, which decreased by 0.5%, contributing negative 0.07 percentage points to quarter-on-quarter GDP growth. Retail trade and accommodation services were the main contributors to the negative growth in this sector. These falls were partially offset by an increase in food and beverage service activities, which grew by 2.7%. Government and other services grew by 0.5%, with human health activities and education being significant contributors, reflecting their large weights within GDP. Business services and finance grew by 0.7%, with accounting activities and travel agency activities both performing strongly in this quarter.

https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/gdpandthelabourmarket/previousReleases

http://www.nationwide.co.uk/about/house-price-index/headlines

https://www.cml.org.uk/news/press-releases/

http://www.tradingeconomics.com/united-kingdom/construction-pmi

https://www.ons.gov.uk/economy/grossdomesticproductgdp/articles/gdpandthelabourmarket/previousReleases


savills.co.uk 2

Gilt Rates: UK gilt yields at 11th July 2017

Maturity Current Yield 1 month ago

10 year 1.28% 1.01%

20 year 1.81% 1.59%

30 year 1.91% 1.68% * Source: http://markets.ft.com/Research/Markets/Bonds

Residential Sales Market The Nationwide House Price Index June 2017 reported; § Prices rose 1.1% month-on-month in June, reversing the previous three months’ falls. § Annual house price growth rises to 3.1% § Gap in house price growth between strongest and weakest performing regions in Q2 is the smallest on

record

Headlines Jun-17 May-17

Monthly Index* 417.5 412.4

Monthly Change* 1.1% -0.2%

Annual Change 3.1% 2.1%

Average Price £211,301 £208,711 Seasonally Adjusted*

Commenting on the figures, Robert Gardner, Nationwide's Chief Economist, said: “UK house prices rebounded in June, with prices rising by 1.1% during the month, erasing the decline recorded over the previous three months. However, monthly growth rates can be volatile, even after accounting for seasonal effects. “The annual rate of house price growth, which gives a better sense of the underlying trend, continues to point to modest price gains. Annual house price growth edged up to 3.1% from 2.1% in May. In effect, after two sluggish months, annual price growth has returned to the 3-6% range that had been prevailing since early 2015. “There has been a shift in regional house price trends. Price growth in the South of England has moderated, converging with the rates prevailing in the rest of the country. In Q2 the gap between the strongest performing region (East Anglia, which saw 5% annual growth) and the weakest (the North, with 1% growth) was the smallest

http://markets.ft.com/Research/Markets/Bonds


savills.co.uk 3

on record, based on data going back to 1974. Nevertheless, when viewed in levels, the price gap between regions remains extremely wide. “London saw a particularly marked slowdown, with annual price growth moderating to just 1.2% - the second slowest pace of the 13 UK regions and the weakest pace of growth in the capital since 2012. Graph: Long Term House Price Trends

Rightmove Market Review June 2017: Sales still strong, but prices fall in June for first time since 2009

§ The number of sales agreed at this time of year is the second highest for ten years, only slightly lower than

the high of May 2014 § However, spring price momentum stalls as price of property coming to market drops by 0.4% (-£1,172), the

first fall in June since 2009 at the height of the credit crunch, and the first fall this year § Some markets struggling against headwinds, whilst others still have following wind despite uncertainty:

o Northern markets motoring ahead with an 11% increase in sales agreed year-on-year, compared to only a 3% increase in the South

o First-time buyer sector sees newly-listed prices surge 3.5% month-on-month and 5.5% year-on-year

Month Avg. asking price Monthly change Annual change Index

June – 17 £316,109 -0.4% +1.8% 260.2

May – 17 £317,281 +1.2% +3.0% 261.2 * Source: Rightmove


savills.co.uk 1

Savills’ residential outlook for 2017 and beyond

Reduced house price growth in the mainstream markets The prospect of weaker economic growth and greater pressure on household finances is expected to remove any significant upward pressure on house prices over 2017 and 2018. In this period, fragile consumer sentiment is likely to offset any boost from low interest rates. A pick up in economic growth and confidence from 2019 – as the future political and economic landscape becomes clearer – is expected to underpin a return of house price growth. However, rising interest rates through 2020 and 2021 are likely to limit growth at the back end of the next five-year period. Lower transaction levels including buy-to-let investors Greater caution among homebuyers is expected to translate into lower transaction levels across the market. Overall we expect transactions to fall by 16% over the period to the end of 2018 before gradually recovering back towards the current level of 1.25 million. We expect mortgaged buy to let investors to be particularly affected given the 3% stamp duty surcharge they now face, the reduced tax relief they are able to get on mortgage interest and the prospect of greater mortgage regulation. Increased rental demand and pressure on private rents Reduced transaction levels and the prospect of tighter lending criteria are expected to continue to drive demand into the private rented sector from frustrated would be home owners. While demand continues to rise, supply is likely to be constrained by the reduced buying activity of private investors. That indicates that rental growth will exceed household earnings growth, facilitated by greater levels of sharing and more affluent groups of renters. A shift in geographical focus We expect the strongest price growth to be the South East and East of England over the next five years, with price growth in London curtailed by affordability pressures. Towards the end of this period, markets in the Midlands and the North will show more capacity for house price growth, though much will depend on local economic drivers. Tax changes are expected to cause investors to shift their focus to some of these higher income yielding lower value markets. A broader approach to supporting housing delivery The changes to Government triggered by the EU vote has heralded a renewed drive to increase housing delivery and a shift in the focus of housing policy. The prospects for subdued transaction levels reinforce the need for a multi-tenure approach to housing delivery to meet current targets. While Help to Buy will continue to play a part in supporting home ownership, there will be much more focus on increasing supply through Build to Rent. This presents much greater opportunities for institutions to meet their aspirations for investment in the residential sector. More opportunities to unlock development potential With the Government looking to free up the planning system and reinvigorate small and medium-sized house builders, there is likely to be more opportunity to unlock development land opportunities. In the short term this may be inhibited by house builder caution. However, as established and emerging developers respond to improving transactional activity and new markets linked to the rental sector, this will present opportunities to unlock long-term hope value. Source: Savills Research, ‘Key themes in UK real estate. Savills Cross Sector Report 2016/17’


savills.co.uk 2

Market forecasts Savills research have released updated forecasts for the mainstream market since the referendum. The following are the latest tables for sales and rented properties:

Mainstream Markets - Five Year Forecast Values

2017 2018 2019 2020 2021 5-year

UK 0.0% 2.0% 5.5% 3.0% 2.0% 13%

London 0.0% 3.0% 4.5% 2.0% 1.0% 11%

South East 2.0% 2.0% 6.5% 4.0% 1.5% 17%

South West 1.0% 2.0% 6.0% 3.0% 1.5% 14%

East of England 2.5% 2.5% 6.5% 4.0% 2.0% 19%

East Midlands 0.0% 2.0% 5.5% 3.5% 2.0% 14%

West Midlands -0.5% 2.0% 5.0% 3.5% 2.0% 13%

North East -2.5% 1.5% 5.0% 2.0% 3.0% 9%

North West -2.0% 2.0% 5.5% 3.0% 3.0% 12%

Yorks & Humber -2.0% 1.5% 5.0% 2.5% 2.5% 10%

Wales -2.0% 1.5% 5.0% 2.5% 2.5% 10%

Scotland -2.5% 1.5% 5.0% 2.0% 3.0% 9% Source: Savills, February 2017

Rental market The outlook for rents is stronger and more stable than for house prices over the next five years. Like the sales market, the rental market faces uncertainty. However, rental values are more closely linked with incomes than with measures that drive house price growth such as interest rates and mortgage availability.

Rental Forecasts - Five Year Forecast Values

2017 2018 2019 2020 2021 5-year

Mainstream UK 2.5% 4.0% 5.0% 3.5% 3.0% 19%

Mainstream London 3.0% 4.5% 5.5% 5.0% 4.5% 25%

Prime Central London 0.0% 0.0% 8.0% 5.0% 6.5% 21% Source: Savills, February 2017


savills.co.uk 3

Rightmove Market Rental Commentary Q1 January – March 2017 - Mainstream Rental Market 12% jump in number of available rental properties leads to slowest annual rate of increase since 2014 § Overhang of last year’s buy-to-let surge leads to more choice for tenants and slower annual rate of

increase in rents: o Number of available rental properties on Rightmove up 12% compared to the same period last

year o Annual asking rent growth of 1.8% is the lowest since Q4 2014, and less than half the annual

growth of 3.9% recorded a year ago in Q1 2016 § Uplift in available properties means it is taking 10% longer for letting agents to secure suitable tenants than

this time last year, and almost 20% longer in London

National Average Market Rents (Excluding Greater London)

Quarter Avg. asking rent per month Quarterly change Annual change

Q1 2017 £768 -0.4% 1.8%

Q4 2016 £771 -1.1% 3.0% Source: Rightmove

Greater London Average Market Rents

Quarter Avg. asking rent per month Quarterly change Annual change

Q1 2017 £1,937 1.5% -4.2%

Q4 2016 £1,908 -3.9% -4.4 % Source: Rightmove



Appendix 5 Savills UK Housing Market Up-date

July 2017

UK Housing Market Update What the lead indicators tell us this month Savills Research

UK Residential

Price growth is volatile and market sentiment points to continued low levels of activity

Nationwide reported a surprise bounce in monthly house price growth in June of 1.1% reversing the house price falls reported over the three preceding months, but other market indicators suggest this may be shortlived. It brings year to date growth up to 1.0% in June compared to -0.1% in in May. The Nationwide index sits in stark contrast to the May RICS survey which reported a growing number of surveyors predicting falling buyer enquiries and new instructions. The number of surveyors predicting house price growth has also fallen back compared to the previous six months. The May survey is a barometer of sentiment in the lead up to the general election as polls began to narrow and the uncertainty created by the result is unlikely to have a positive impact in June. This suggests the Nationwide bounce could be a one off and its effect may erode over the course of the year. The June meeting of the Monetary Policy Committee (MPC) saw greater than usual division amongst members, who voted against a rise in interest rates by only 5 to 3. This follows a caution to lenders to apply the stringent affordability criteria as established by Mortgage Market Review in 2014, in the June Financial Stability Report. This reflects concerns that lenders have softened affordability assessments in light of a benign lending environment and are not testing mortgagors capacity to maintain payments at SVR +3%. The least affordable markets are most exposed to a tightening in the stress testing regime and these markets are already seeing lower levels of activity and generally lower levels of house price growth.

quarterly house price falls in London and the South East of -2.0% and -0.7% respectively, the first quarterly falls in these regions since 2012. Our local authority level index for April shows the highest annual growth in Medway, Harlow and Stevenage. These cheaper markets have more capacity for growth than London and its suburbs. But no local authority saw annual growth over 16%, whereas in January twelve were above this level. Rental value growth was reported by ONS at 1.8% across Great Britain in the year to May. The south and midlands of England, excluding London, have seen above average rental growth over this period.

Figure 1 Average price versus 2007/8 peak, Apr-17

Figure 2 Average price growth, year to Apr-17

Source: Savills using HM Land Registry and Registers of Scotland (12 month smoothed)*

2

July 2017

UK Housing Market Update | What the lead indicators tell us this month

The May RICS Survey shows that the number of surveyors reporting growth in new buyer enquiries has gone down sharply, accelerating the downward trend set by the first half of 2017.

Significantly more surveyors are reporting falling numbers of new instructions than rising.

This suggests that activity levels are likely to remain subdued, in line with our forecasts. Supply and demand measures have continued to move broadly in line with one another meaning there is limited pressure on prices in either direction.

Figure 3 Indicators continue to show buyer enquiries and new instructions down

Source: RICS (seasonally adjusted)

The RICS Survey has, at times, been a good forward indicator of house price movements.

The number of surveyors reporting rising house prices fell in May following three months of reported house price falls from Nationwide.

Three month price growth reported by the ONS has started to follow the Nationwide index down. But Nationwide three month price growth has returned to positive territory due to the price bounce in June.

Figure 4 wanes in the face of volatile indices

Source: RICS, Nationwide, ONS

Annual transaction volumes in England & Wales continue to be distorted by the spike in purchases of

2016 before the additional SDLT came into effect in April.

There was a very slight uptick in purchases in April, following the dramatic falls

SDLT-influenced March data fell out of the annualised numbers

London continues to see much reduced transaction volumes, with activity levels in April 2017 being only very slightly higher than April 2016, immediately after the March spike.

Figure 5 Transaction volumes remain subdued in the south and particularly London

Source: Savills using HM Land Registry (adjusted for count lag) and Registers of Scotland

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UK Housing Market Update | What the lead indicators tell us this month

Recent house price growth

Nationwide (to Jun-17)

ONS (to Apr-17)

Savills (to Apr-17)

m/m q/q y/y m/m q/q y/y m/m q/q y/y

UK 1.1% 0.5% 3.1% 0.1% 1.6% 4.6% 0.4% 1.0% 5.6%

London n/a -2.0% 1.3% 0.5% 1.8% 3.0% 0.2% 0.8% 7.6%

South East n/a -0.7% 3.4% 0.6% 1.9% 4.5% 0.4% 1.4% 8.6%

East of England n/a 0.2% 5.1% 0.2% 1.7% 7.4% 0.6% 2.0% 10.6%

South West n/a 0.2% 4.5% -0.3% 2.1% 3.3% 0.4% 1.3% 6.6%

East Midlands n/a 1.0% 4.1% 0.7% 2.3% 6.8% 0.3% 1.3% 6.2%

West Midlands n/a 0.6% 3.6% 0.6% 2.4% 6.6% 0.5% 1.5% 6.0%

North East n/a 0.7% 1.2% -2.3% -2.0% -0.5% 0.0% 0.0% 1.9%

Yorks & Humber n/a 0.6% 2.2% 0.5% 0.8% 4.5% 0.2% 0.8% 3.9%

North West n/a 0.6% 4.1% 0.4% 1.6% 5.5% 0.4% 1.1% 4.8%

Wales n/a 0.5% 1.5% 1.3% 1.5% 4.6% 0.3% 0.8% 4.3%

Scotland n/a -0.7% 1.8% 0.0% 1.4% 1.5% 0.4% 1.5% 3.9% Source: Savills using HM Land Registry and Registers of Scotland*, Nationwide (seasonally adjusted), ONS (seasonally adjusted)

Five year forecasts (first published November 2016)

2017 2018 2019 2020 2021 5-year

UK 0.0% 2.0% 5.5% 3.0% 2.0% 13%

London 0.0% 3.0% 4.5% 2.0% 1.0% 11%

South East 2.0% 2.0% 6.5% 4.0% 1.5% 17%

East of England 2.5% 2.5% 6.5% 4.0% 2.0% 19%

South West 1.0% 2.0% 6.0% 3.0% 1.5% 14%

East Midlands 0.0% 2.0% 5.5% 3.5% 2.0% 14%

West Midlands -0.5% 2.0% 5.0% 3.5% 2.0% 13%

North East -2.5% 1.5% 5.0% 2.0% 3.0% 9%

Yorks & Humber -2.0% 1.5% 5.0% 2.5% 2.5% 10%

North West -2.0% 2.0% 5.5% 3.0% 3.0% 12%

Wales -2.0% 1.5% 5.0% 2.5% 2.5% 10%

Scotland -2.5% 1.5% 5.0% 2.0% 3.0% 9% Source: Savills

Contacts

Holly Titford Analyst [email protected] 0207 299 3077

Chris Buckle Director [email protected] 0207 016 3881

Website www.savills.co.uk/housing-market-updates

*Savills index is an unadjusted repeat sales index based on HM Land Registry and Registers of Scotland price paid data. Note that Savills national index (labelled UK) is for Great Britain, not including Northern Ireland.

This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.



http://www.savills.co.uk/housing-market-updates



Appendix 6 Confirmation of Instructions

James Tillier FRICSE: [email protected]

DL: +44 (0) 1444 446031M: +44 (0) 7812 965424

37-39 Perrymount RoadHaywards Heath RH16 3BN

T: +44 (0) 1444 446 040savills.com

bc

Offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. Savills Advisory Services Limited. Chartered Surveyors. Regulated by RICS. A subsidiary of Savills plc. Registered in England No. 6215875. Registered office: 33 Margaret Street, London, W1G 0JD

Dear Sirs CLIENT / ISSUER: YARLINGTON TREASURY SERVICES PLC

REPORTING COMPANY: SAVILLS ADVISORY SERVICES LIMITED

PROPERTY: VALUATION OF HOUSING STOCK RELATING TO THE ISSUE OF SECURED BONDS

Confirmation of terms of engagement for the provision of valuation advice 1. The purpose of this letter is to confirm the terms upon which Savills Advisory Services Limited (Savills,

we or us) will provide the Client (you) with a valuation report (the Valuation or Report) in respect of the above property or properties (each being a Property) secured in bonds for the purposes of a revaluation of existing bond security. 130(i)

2. Our Valuation will be undertaken on the terms set out in this letter, including its appendices. 3. Please sign and return a copy of this letter to us to confirm your acceptance of the terms set out herein.

In particular, we draw your attention to the fact that when signing this letter you are confirming your agreement to the limitation of our liability set out at paragraphs 7 - 11.

4. Please note we will be unable to formally issue our final Report to you, and you will be unable to rely

upon the contents of our Report, until such time as we have received your signed copy of this letter.

5. To the extent that there is conflict or inconsistency between this confirmation of instruction letter and your letter referred to above, this confirmation of instruction letter will prevail.

RICS Red Book

6. We shall prepare our Valuation in accordance with the RICS Valuation – Global Standards 2017

incorporating the IVSC International Valuation Standards issued June 2017 and effective from 1 July 2017 (the “Red Book”) using the reasonable skill, care and diligence to be expected of a properly qualified and competent valuer. In addition, and in accordance with the requirements of Valuation Practice Statement 1 of the Red Book, we confirm the following:

(a) Identification and status of the Valuer

26 July 2017 PRIVATE AND CONFIDENTIAL Yarlington Housing Group Limited Lupin Way Alvington Yeovil Somerset BA22 8WN For the attention of: Caroline Moore, Executive Director


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Yarlington Housing Group Ltd Valuation of Housing Stock to be Secured under a Listed Bond 2017

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(i) The Valuation will be undertaken, and the Report will be signed by James Tillier FRICS (the Valuer). The Valuer will work with colleague(s) as appropriate, and the Report will be counter-signed by at least one other RICS Registered Valuer;

(ii) We are not aware of any conflict of interest in us accepting your instruction to value the

Property and the Valuer is in a position to provide an objective and unbiased valuation;

(iii) The Valuer has the necessary market knowledge, skills and understanding to undertake the Valuation competently. We act as External Valuers as defined in the Red Book.

(b) Identification of the Client and other intended users

The Client is the addressee of this letter. The Report will be addressed to and capable of being relied upon by the following parties (together the Addressees) as follows: “This Report is addressed to and capable of being relied upon by: (i) Prudential Trustee Company Limited in its capacity as Security Trustee under the existing security trust deed (ii) Prudential Trustee Company Limited in its capacity as Bond Trustee under (and as such term is defined in) the Security Trust Deed Laurence Pountney Hill London EC4R 0HH (the “Bond Trustee”) (iii) TradeRisks Limited 27 Great Winchester Street London EC2N 2JA (as Arranger and Dealer)

(iv) Yarlington Treasury Services plc in its capacity as Issuer under (and as such term is defined in) the Security Trust Deed) Lupin Way Alvington Yeovil Somerset BA22 8WN (the “Issuer”)

(v) Yarlington Housing Group Limited Lupin Way Alvington Yeovil Somerset BA22 8WN (the “Original Borrower”)

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(together, the Addressees) provided that, in relying on this Report, each of the Addressees acknowledges and agrees that:

(a) this Report refers to the position at the date it was originally issued and we have not taken, nor are we obliged to take, any action to review or update this Report since the date it was originally issued;

(b) our aggregate liability to any one or more or all of the Addressees in respect of this Report or any other person who becomes entitled to rely on the Report shall be limited to the lower of 33% of the Value as stated in the Report and £75million.”

(b) This Report is subject to the terms and conditions set out in our letter of engagement with Yarlington Treasury Services plc dated 26 July 2017.”

(c) Identification of the asset or liability to be valued

(i) The Property addresses comprise 48 residential properties in Winsham, Somerset, listed

in a schedule of addresses supplied by the Client.

(ii) We understand the interests to be valued are freehold. The Property will be valued subject to the occupational leases / licences and / or with vacant possession, details to be confirmed in our Report.

(iii) The interest(s) to be valued comprise residential flats and houses and are held by the

Client in connection with its business of a Registered Provider of social housing.

(d) The valuation will be in pounds sterling

(e) Purpose of the valuation

The Valuation is required for the purpose of issuing a new UKLA listed bond (“the Proposed Transaction”). It is important that the Report is not used out of context or for the purposes for which it was not intended. We shall have no responsibility or liability to any party in the event that the Report is used outside of the purposes for which it was intended, or outside of the restrictions on its use set out at sub-paragraph (l) below.

(f) Basis of value The basis of our Valuation will be Existing Use Value for Social Housing (“EUV-SH”) and, where appropriate, Market Value Subject to Tenancies (“MV-STT”), the definitions of which are set out at Appendix 1 (attached). We will also provide the estimated aggregate Market Value subject to the special assumption of Vacant Possession (“MV-VP”) for information purposes only.

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(g) Valuation date

The Valuation date is the date of our report. You will appreciate that in providing you with our Valuation, we shall have regard to market conditions as at the Valuation date. Naturally, these are subject to change and it is therefore important that the Addressees take account of any such change in conditions that may occur from the Valuation date before making any binding decision in relation to the Property. Please do not hesitate to contact us ahead of making any binding decision which takes account of our Valuation if you have any concerns in this respect.

(h) Extent of investigation We will carry out an inspection of the Property and or investigations to the extent necessary to undertake the Valuation. We will not carry out a structural survey or test the services and nor will we inspect the woodwork and other parts of the structures which are covered, unexposed or inaccessible.

(i) Lotting The Properties will be valued assuming disposal as a single lot and no allowance will be made, either positive or negative, should they be disposed of in smaller lot sizes.

(j) Nature and source of information to be relied upon

(i) We will carry out our Valuation on the information listed below provided by the Issuer: i Stock list detailing the Property addresses, Property reference numbers, Type, Sub-

Type, Letting Type, Bedroom sizes, Tenancy Types, 2017/18 Net Rents & Target Rents;

i Performance data on a company-wide basis on voids, bad debts, management expenditure and turnover of stock and

i Stock maintenance data.

(ii) To the extent that you have provided us with information and / or instructed us to obtain it from a third party you agree, unless it is otherwise agreed by us in writing, that we can safely rely upon the accuracy, completeness and consistency of this information without further verification and that you will not hold us responsible in the event that any dispute regarding the Valuation arises from the accuracy of such information.

(iii) Floor areas (where appropriate) will be reported in accordance with RICS Property Measurement 1st edition, published in May 2015, which updated the RICS Code of Measuring Practice 6th Edition and incorporates International Property Measurement Standards (IPMS).

(iv) We will not be measuring any part of the Properties. In such cases we may estimate

floor areas from plans, or by extrapolation. Such measurements should not be relied upon for any other purpose.

(v) We will not make formal searches with local planning authorities, but shall rely on the information provided informally by the local planning authority or its officers. We recommend you instruct lawyers to confirm the position in relation to planning and that the Report is reviewed in light of advice from your solicitors in this respect.

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(vi) For the avoidance of doubt, we accept no liability for any inaccuracy or omission contained in information disclosed by you or any other third party or from the Land Registry or any database to which we subscribe. We will highlight in our Report where we have relied on such information.

(k) Assumptions and Special Assumptions

Unless otherwise agreed, our Valuation will be reported on the basis of the general assumptions attached at Appendix 2 and, where the Property is residential, the additional assumptions set out at Appendix 3.

(l) Format of Report

Our Report will meet the requirements of VPS 3, Valuation Reports, which sets out the mandatory minimum terms of reporting and includes all the matters addressed in this confirmation of instruction letter.

(m) Restrictions on use, distribution or publication

(i) Our Report shall be confidential to, and for the use only of, the Addressee(s) and no

responsibility shall be accepted to any third party for the whole or any part of its contents.

(ii) Neither the whole nor any part of our Report or any reference to it may be included in

any published document, circular or statement, nor published, reproduced, referred to or used in any way without our prior written approval (with such approval to be given or withheld at our absolute discretion).

(iii) We confirm that we consent in principle to the Report or a summary prepared by us

being included in an offering document or prospectus in connection with the Proposed Transaction, provided that:

(A) the Report or any summary shall not be published until such time as we have first approved the form and context in which the Report appears (such approval not to be unreasonably withheld or delayed) and are satisfied that the Report has been accurately reproduced or the summary is sufficiently accurate and comprehensive (as the case may be);

(B) the prospectus or offering document shall make clear that, with the exception of the Report or summary, Savills does not accept any responsibility for any part of the prospectus or any other information issued by any one of the Addressees or any other person in connection with the Proposed Transaction;

(C) such Report or summary complies in all respects with the requirements of the Red Book and any applicable regulations or directives;

(D) if, in our opinion, any part of our Report becomes misleading or inaccurate between the date of issue of the Report and the date of the relevant offering document or prospectus being issued we reserve the right to withdraw our consent to your use of our Report or the summary unless and until we have made such amendments to it as we (acting reasonably and without undue delay) deem necessary or desirable, notwithstanding that our doing so may necessitate deferral of publication of the prospectus or offering document.

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(iv) You shall indemnify and hold us harmless from and against all claims, actions, proceedings, investigations, demands, judgments and awards (together “Claims”) which may be instituted, made, threatened or alleged against or otherwise involve us and all losses, liabilities, damages, costs, charges and expenses (together “Losses”) which may be suffered or incurred by us, and which in any such case arise, directly or indirectly, out of or in connection with the inclusion of our Report or a summary of our Report in the Materials including (without limitation) all Losses which we may incur in investigating, disputing or defending, or providing evidence in connection with, any Claim (whether or not we are an actual or potential party to such Claim) or in establishing or enforcing our rights under this paragraph, which shall be additional to and without prejudice to any rights which we may have at common law or otherwise. We shall not be entitled to be indemnified in respect of Claims or Losses to the extent that such Claims or such Losses are finally judicially determined to have arisen as a result of our negligence, wilful default or fraud.

(v) Where any Addressee is a lender, in the event of a proposal to place the loan on the Property in a syndicate, you must notify us so that we can agree the extent of our responsibility to further named parties. If this is not done or we do not agree to be responsible to further named parties, we shall have no responsibility to any party other than the Addressee(s).

(vi) Draft reports, if provided, will be sent on the basis that they are provisional (i.e. subject

to completion of our final report) and for your internal purposes only. They must not be published or disclosed and you will not be entitled to rely upon them for any purpose whatsoever. Savills neither owes nor accepts a duty of care to you in connection with any drafts and shall not be liable to you for any loss, damage, cost or expense of whatever nature caused by your use of or reliance on them. Should you choose to rely upon a draft you do so entirely at your own risk and you are responsible for carrying out your own independent investigations.

(n) Confirmation that the Valuation will be undertaken in accordance with the International Valuation

Standards (IVS)

We confirm that our Valuation will be carried out in compliance with the IVS and that the valuer will assess the appropriateness of all significant inputs.

(o) The basis on which the fee will be calculated

(i) The agreed fee for the provision of the Valuation is £3,000 plus VAT inclusive of

expenses and is payable by the Client in pounds sterling.

(ii) Our agreed fee and any expenses, together with any VAT (at the prevailing rate) on such amounts, shall become due and payable by you to us within 30 days of us issuing you with a valid VAT invoice in respect of such amounts. In the event that our fee is not paid by the date for payment we reserve the right to charge default interest at a rate of 4% above the Barclays Bank base rate for payment.

(iii) In the event of our instructions being terminated at any time prior to completion of our work, a fee will become payable on a time basis (at our prevailing rates) for work carried out up to the date of termination, subject to a minimum of 50% of the agreed fee, together with all expenses incurred.

(iv) If we incur any expenditure on solicitors or other third parties in order to recover the fee due, such amounts will be payable by you.

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(v) If we perform any additional services for you, we will agree an additional fee with you in respect of such services and such fee shall be payable in the manner set out above.

(vi) You acknowledge that you shall not be entitled to rely upon our Report until such time as our fees have been paid in accordance with this sub-paragraph (o).

(p) Savills Complaints Handling Procedure

Savills Advisory Services Limited is registered for regulation by the RICS and a copy of our Client Complaints Handling Procedure can be made available to you on request.

(q) Monitoring under RICS conduct and disciplinary regulations

Compliance with the standards set down in the RICS Red Book may be subject to monitoring by the RICS under its conduct and disciplinary regulations.

Limitations on liability

7. Subject to paragraph 11 below, our aggregate liability to any one, or more, or all of the Addressees or

any other party who otherwise becomes entitled to rely upon the Report under or in connection with this agreement and our Valuation, however that liability arises (including, without limitation, a liability arising by breach of contract, arising by tort, including, without limitation, the tort of negligence, or arising by breach of statutory duty) shall be limited to the lower of:

(a) 33% of the Value (as defined below) of the Property stated in our Report; and

(b) £75M.

8. In paragraph 7, Value means:

(a) where more than one value is stated for the same Property on different bases, the highest valuation figure recorded in our Report; and

(b) in the case of valuations of portfolios, estates, shopping centres and other multi-unit properties within one Report, the aggregate of our valuations included in the one Report.

9. You acknowledge and agree that we shall not be liable under or in connection with this agreement and the provision of our Valuation in tort (including negligence), breach of contract, breach of statutory duty or otherwise due to, under and/or arising out of or in connection with this agreement to the extent such loss or damage is consequential, indirect, special or punitive.

10. You acknowledge and agree that none of our employees, partners or consultants individually has a contract with you or owes you a duty of care or personal responsibility. You agree that you will not bring a claim against any such individuals personally in connection with our services.

11. Nothing in this agreement shall exclude or limit our liability for death or personal injury caused by our negligence or for any other liability that cannot be excluded by law.

Insurance

12. During the period that we are producing our Valuation and for a period of six years thereafter, we will

maintain in force, with insurers or underwriters approved by the RICS, professional indemnity insurance in an amount not less than the amount of our liability cap, as calculated pursuant to clause 7 above and shall, on your request, produce confirmation of the same from our insurance broker.

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Reliance 13. As stated above, we accept responsibility for our Report only to the Addressees and no third party may

rely on our Report. We do not accept any responsibility to, and shall have no liability in respect of, any third parties unless otherwise agreed writing even if that third party pays all or part of our fees, or is permitted to see a copy of our Valuation. In addition, the benefit of our Report is personal and neither you nor any other Addressee may assign the benefit of our Report to any third party without our prior written consent (with such consent to be given or withheld at our absolute discretion). You acknowledge that if we agree to extend reliance on our Report to any third party or to the benefit of our Report being assigned, we will require the relevant third party or assignee to enter into a reliance letter before such party is entitled to rely upon our Report. We will provide you with a copy of our reliance letter on request. If we agree to any such extension or assignment, we may charge you an additional fee.

Confidentiality

14. Neither party shall disclose any confidential information relating to the affairs, business, customers or

clients of the disclosing party to any other party without the disclosing party’s prior written consent except to those of the disclosing party’s employees, officers, representatives and/or advisors who need to know the information for the purposes of carrying out the receiving party’s obligations under this agreement (save to the extent that the receiving party is compelled to disclose such information by law).

15. Our Report is confidential to and for the use only of the Addressees, but the Addressees may disclose the Report on a non-reliance and without liability basis to their directors, officers, employees and professional advisers provided the relevant Addressee procures any person to whom our Report is disclosed pursuant to this paragraph 15 keeps the Report confidential and does not disclose it to any other party.

Reinstatement costs

16. If you have instructed us to report on the reinstatement cost of the Property for insurance purposes, we

will provide you with an approximate opinion of such cost only. You acknowledge and agree that the provision of our opinion of the reinstatement cost is provided to you strictly without liability and on a non-reliance basis. If you require a reinstatement cost figure on which you may rely, please let us know and we will ask our building surveying colleagues to provide a fee estimate.

Sub-contracting

17. We may sub-contract the provision of any services to be performed by us pursuant to this agreement

(including, without limitation, to other companies that are direct or indirect subsidiaries of Savills plc) provided that we will remain responsible to you for the provision of those services and the provision of our Report. We may request that you pay any sub-contractor directly for those of our fees which relate to work carried out by the sub-contractor. In these circumstances, the fees in question are to be paid by you directly to the sub-contractor and we will be entitled to assign to the sub-contractor any rights that we have in respect of those fees.

Money Laundering 18. You shall promptly, upon request, provide us with any information reasonably required to enable us to

comply with our obligations under the Money Laundering, Terrorist Financing and Transfer of Funds (information on the Payer) Regulations 2017 and our internal compliance policies relating to the same. For the avoidance of doubt, searches may also be conducted on your directors and “beneficial owners” as is required by the legislation. You agree that we may retain such information and documentation for these purposes and make searches of appropriate databases electronically. If such information is not provided within a reasonable time or you do not meet the requirements set out in our relevant internal policies, we may terminate this instruction immediately upon written notice to you.

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Health and Safety

19. If we are undertaking physical inspections of the Property, you shall take reasonable steps to procure that the owner and/or occupier of the Property:

(a) advises us of any hazards to which our staff may be exposed at the Property;

(b) provides us with any relevant health and safety policies; and

(c) arranges for any site visits to the Property to be hosted by a representative of the owner/occupier of the Property.

Jurisdiction

20. This agreement and any dispute arising from the Valuation is subject to English jurisdiction and law.

Appendices

21. Your attention is drawn to the attached appendices which form part of the agreement between us and on which our Valuation will be reported. By signing a copy of this letter you are also confirming your agreement to them.

Yours faithfully

James Tillier FRICS Director RICS Registered Valuer For and on behalf of Savills (UK) Ltd

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Appendix 1: Basis of Valuation - definitions Depreciated Replacement Cost: The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. Existing Use Value: The estimated amount for which an asset or liability should exchange on the Valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the asset required by the business and disregarding potential alternative uses and any other characteristics of the asset that would cause its market value to differ from that needed to replace the remaining service potential at least cost. Existing Use Value is to be used only for valuing property that is owner occupied by a business, or other entity, for inclusion in financial statements. Existing Use Value for social housing: Existing use value for social housing (EUV-SH) is an opinion of the best price at which the sale of an interest in a property would have been completed unconditionally for a cash consideration on the valuation date, assuming:

(a) a willing seller

(b) that prior to the valuation date there had been a reasonable period (having regard to the nature of the property and the state of the market) for the property marketing of the interest for the agreement of the price in terms and for the completion of the sale

(c) that the state of the market, level of values and other circumstances were on any earlier assumed data of exchange of contracts, the same as on the date of valuation

(d) that no account is taken of any additional bid by a prospective purchaser with a special interest

(e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion

(f) that the property will continue to be let by a body in applying its criteria for approval would not unreasonably fetter the vendor’s ability to dispose of a property to organisations intending to manage their housing stock in accordance with that regulatory body’s requirements

(g) that properties temporarily vacant pending re-letting should be valued, if there is a letting demand, on the basis that the prospective purchaser intends to re-let them, rather than with vacant possession and

(h) that any subsequent sale would be subject to all the same assumptions above.

Fair Value: The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date (International Financial Reporting Standard IFRS 13). Gross development value (GDV) - The aggregate Market Value of the proposed development assessed on the special assumption that the development is complete as at the Valuation date in the market conditions prevailing at that date.

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Investment value: The value of an asset to the owner or prospective owner for individual investment or operational objectives. Market Rent: The estimated amount for which an interest in real property should be leased on the Valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion. Market Value: The estimated amount for which an asset or liability should exchange on the Valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.

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Appendix 2: General assumptions and conditions applicable to all Valuations Unless otherwise agreed in writing, our Valuation will be carried out on the basis of the following general assumptions and conditions in relation to each Property that is the subject of our Report. If any of the following assumptions or conditions are not valid, this may be that it has a material impact on the figure(s) reported and in that event we reserve the right to revisit our calculations. 1. That the Property is not subject to any unusual or especially onerous restrictions, encumbrances

or outgoings contained in the Freehold Title. Should there be any mortgages or charges, we have assumed that the property would be sold free of them. We have not inspected the Title Deeds or Land Registry Certificate.

2. That we have been supplied with all information likely to have an effect on the value of the Property, and that the information supplied to us and summarised in this Report is both complete and correct.

3. That the building(s) has/have been constructed and is/are used in accordance with all statutory and bye-law requirements, and that there are no breaches of planning control and any future construction or use will be lawful.

4. That the Property is not adversely affected, nor likely to become adversely affected, by any highway, town planning or other schemes or proposals, and that there are no matters adversely affecting value that might be revealed by a local search, replies to usual enquiries, or by any statutory notice (other than those points referred to above).

5. That the building(s) is/are structurally sound, and that there are no structural, latent or other material defects, including rot and inherently dangerous or unsuitable materials or techniques, whether in parts of the building(s) we have inspected or not, that would cause us to make allowance by way of capital repair (other than those points referred to above). Our inspection of the Property and our Report do not constitute a building survey or any warranty as to the state of repair of the Property.

6. That the Property is connected, or capable of being connected without undue expense, to the public services of gas, electricity, water, telephones and sewerage.

7. That in the construction or alteration of the building(s) no use was made of any deleterious or hazardous materials or techniques, such as high alumina cement, calcium chloride additives, woodwool slabs used as permanent shuttering and the like (other than those points referred to above). We have not carried out any investigations into these matters.

8. That the Property has not suffered any land contamination in the past, nor is it likely to become so contaminated in the foreseeable future. We have not carried out any soil tests or made any other investigations in this respect, and we cannot assess the likelihood of any such contamination.

9. Where the property is leasehold, that any tenant(s) is/are capable of meeting its/their obligations, and that there are no arrears of rent or undisclosed breaches of covenant.

10. In the case of a Property where we have been asked to value the site under the special assumption that the Property will be developed, there are no adverse site or soil conditions, that the Property is not adversely affected by the Town and Country Planning (Environmental Impact Assessment) Regulations 2011 (as amended in 2015), that the ground does not contain any

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archaeological remains, nor that there is any other matter that would cause us to make any allowance for exceptional delay or site or construction costs in our Valuation.

11. We will not make any allowance for any Capital Gains Tax or other taxation liability that might arise upon a sale of the Property.

12. Our Valuation will be exclusive of VAT (if applicable).

13. No allowance will be made for any expenses of realisation.

14. Excluded from our Valuation will be any additional value attributable to goodwill, or to fixtures and fittings which are only of value in situ to the present occupier.

15. In the case of a Property where there is a distressed loan we will not take account of any possible effect that the appointment of either an Administrative Receiver or a Law of Property Act Receiver might have on the perception of the Property in the market and its/their subsequent valuation, or the ability of such a Receiver to realise the value of the property(ies) in either of these scenarios.

16. No allowance will be been made for rights, obligations or liabilities arising under the Defective Premises Act 1972, and it will be assumed that all fixed plant and machinery and the installation thereof complies with the relevant UK and EEC legislation.

17. Our Valuation will be based on market evidence which has come into our possession from numerous sources, including other agents and valuers and from time to time this information is provided verbally. Some comes from databases such as the Land Registry or computer databases to which Savills subscribes. In all cases, other than where we have had a direct involvement with the transactions being used as comparables in our Report, we are unable to warrant that the information on which we have relied is correct.

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Appendix 3: Further General Assumptions applicable to residential Valuations only

The following general assumptions apply to residential property valuations. For the avoidance of doubt, these are in addition to the general assumptions at Appendix 2. 1 Where the Property comprises flats or maisonettes, unless instructed or otherwise aware to the

contrary, we will assume that:

(a) The costs of repairs and maintenance or the building and grounds are shared equitably between the flats and maisonettes.

(b) There are suitable enforceable covenants between all leaseholders or through the landlord

or the owner. (c) There are no onerous liabilities outstanding. (d) There are no substantial defects or other matters requiring expenditure (in excess of the

current amount of assumed amount of service charge payable on an annual basis), expected to result in charges to the leaseholder, or owner of the Property, during the next five years, equivalent to 10% or more of the reported Market Value.

2 Where the dwelling is leasehold and it is not possible to inspect the lease or details have not

been provided to us, the following further assumptions will be made, unless instructed to the contrary:

(a) The unexpired term of the lease is 70 years, and no action has been taken by any eligible

party with a view to acquiring the freehold or to extending the lease term.

(b) That there are no exceptionally onerous covenants upon the leaseholder.

(c) The lease cannot be determined except on the grounds of a serious breach of covenants in the existing lease agreement.

(d) If there are separate freeholders, head and/or other sub-head leaseholders, the terms and conditions of all the leases are in the same form and contain the same terms and conditions.

(e) The lease terms are mutually enforceable against all parties concerned.

(f) There are no breaches of covenants or disputes between the various interests concerned.

(g) The leases of all the properties in the building/development are materially the same.

(h) The ground rent stated or assumed is not subject to review and is payable throughout the expired lease term.

(i) In the case of blocks of flats or maisonettes of over six dwellings, the freeholder manages the property directly or there is an appropriate management structure in place.

(j) There is a dutyholder, as defined in the Control of Asbestos Regulations 2012, and there are in place an asbestos register and effective management plan, which does not require any immediate expenditure, pose a significant risk to health or breach of the Health and Safety Executive (HSE) regulations.

(k) Where the Property forms part of a mixed residential or commercially used block or development, there will be no significant changes in the existing pattern of use.

a


Page 16

(l) Where the Property forms part of a development containing separate blocks of dwellings,

the lease terms of the Property apply only to the block. There will be no requirement to contribute towards costs relating to the other parts of the development, other than in respect of common roads, paths, communal grounds and services.

(m) Where the Property forms part of a larger development, the ownership of which has since been divided, all necessary rights and reservations have been reserved.

(n) There are no unusual restrictions on assignment or sub-letting of the Property for residential purposes.

(o) There are no outstanding claims or litigation concerning the lease of the Property or any others within the same development.

(p) Where the Property benefits from additional facilities within a development, the lease makes adequate provision for the lessee to continue to enjoy them with exceptional restriction, for the facilities to be maintained adequately, and that there are no charges over and above the service charge for such use and maintenance.

3 In respect of insurance the following assumptions will be made, unless instructed otherwise:

(a) The Property can be insured under all-risks cover for the current reinstatement cost and is available on normal terms.

(b) There are no outstanding claims or disputes. (c) Where individuals in a block makes separate insurance arrangements, the leases make

provision for mutual enforceability of insurance and repairing obligations (d) Any landlord responsible for insurance is required to rebuild the Property with the

alterations that may be necessary to comply with current Building Regulations and planning requirements.



Appendix 7 General Assumptions

Bases of Value & General Assumptions and Conditions

1

BASES OF VALUE & GENERAL ASSUMPTIONS AND CONDITIONS

1. Basis of Valuation - definitions

Depreciated Replacement Cost: The current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimisation. Existing Use Value: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had acted knowledgeably, prudently and without compulsion, assuming that the buyer is granted vacant possession of all parts of the asset required by the business and disregarding potential alternative uses and any other characteristics of the asset that would cause its market value to differ from that needed to replace the remaining service potential at least cost. Existing Use Value is to be used only for valuing property that is owner occupied by a business, or other entity, for inclusion in financial statements. Existing Use Value For Social Housing: an opinion of the best price at which the sale of an interest in a property would have been completed unconditionally for a cash consideration on the valuation date, assuming:

a) a willing seller b) that prior to the valuation date there had been a reasonable period (having regard to the nature of the property and

the state of the market) for the proper marketing of the interest for the agreement of the price and terms and for the completion of the sale

c) that the state of the market, level of values and other circumstances were on any earlier assumed date of exchange of contracts, the same as on the date of valuation

d) that no account is taken of any additional bid by a prospective purchaser with a special interest e) that both parties to the transaction had acted knowledgeably, prudently and without compulsion f) that the property will continue to be let by a body pursuant to delivery of a service for the existing use g) that at the valuation date any regulatory body in applying its criteria for approval would not unreasonably fetter the

vendor’s ability to dispose of a property to organisations intending to manage their housing stock in accordance with that regulatory body’s requirements

h) that properties temporarily vacant pending re-letting should be valued, if there is a letting demand, on the basis that the prospective purchaser intends to re-let them, rather than with vacant possession and

i) that any subsequent sale would be subject to all the same assumptions above.

Fair Value: Valuations based on Fair Value will adopt one of two definitions – depending upon the purpose, namely: The IVS 2013 definition: The estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties, or The IFRS 13 definition: The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Gross development value (GDV) - The aggregate Market Value of the proposed development assessed on the special assumption that the development is complete as at the date of valuation in the market conditions prevailing at that date.


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Investment value: Investment value is the value of an asset to the owner or prospective owner for individual investment or operational purposes. Market Rent: The estimated amount for which an interest in real property should be leased on the valuation date between a willing lessor and a willing lessee on appropriate lease terms in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion. Market Value: The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgably, prudently and without compulsion.


3

2. General assumptions and conditions applicable to all valuations

Unless otherwise agreed in writing, our Valuation will be carried out on the basis of the following general assumptions and conditions in relation to each Property that is the subject of our Report. If any of the following assumptions or conditions are not valid, this may be that it has a material impact on the figure(s) reported and in that event we reserve the right to revisit our calculations.

1. That the Property is not subject to any unusual or especially onerous restrictions, encumbrances or outgoings contained in the Freehold Title. Should there be any mortgages or charges, we have assumed that the property would be sold free of them. We have not inspected the Title Deeds or Land Registry Certificate.

2. That we have been supplied with all information likely to have an effect on the value of the Property, and that the information supplied to us and summarised in this Report is both complete and correct.

3. That the building(s) has/have been constructed and is/are used in accordance with all statutory and bye-law

requirements, and that there are no breaches of planning control and any future construction or use will be lawful.

4. That the Property is not adversely affected, nor likely to become adversely affected, by any highway, town planning or other schemes or proposals, and that there are no matters adversely affecting value that might be revealed by a local search, replies to usual enquiries, or by any statutory notice (other than those points referred to above).

5. That the building(s) is/are structurally sound, and that there are no structural, latent or other material defects, including

rot and inherently dangerous or unsuitable materials or techniques, whether in parts of the building(s) we have inspected or not, that would cause us to make allowance by way of capital repair (other than those points referred to above). Our inspection of the Property and our Report do not constitute a building survey or any warranty as to the state of repair of the Property.

6. That the Property is connected, or capable of being connected without undue expense, to the public services of gas,

electricity, water, telephones and sewerage.

7. That in the construction or alteration of the building(s) no use was made of any deleterious or hazardous materials or techniques, such as high alumina cement, calcium chloride additives, woodwool slabs used as permanent shuttering and the like (other than those points referred to above). We have not carried out any investigations into these matters.

8. That the Property has not suffered any land contamination in the past, nor is it likely to become so contaminated in the

foreseeable future. We have not carried out any soil tests or made any other investigations in this respect, and we cannot assess the likelihood of any such contamination.

9. That any lessee(s) is/are capable of meeting its/their obligations, and that there are no arrears of rent or undisclosed

breaches of covenant.


4

10. In the case of a Property where we have been asked to value the site under the special assumption that the Property will be developed, there are no adverse site or soil conditions, that the Property is not adversely affected by the Town and Country Planning (Assessment of Environmental Effects) Regulations 1988, that the ground does not contain any archaeological remains, nor that there is any other matter that would cause us to make any allowance for exceptional delay or site or construction costs in our Valuation.

11. We will not make any allowance for any Capital Gains Tax or other taxation liability that might arise upon a sale of the

Property.

12. Our Valuation will be exclusive of VAT (if applicable).

13. No allowance will be made for any expenses of realisation.

14. Excluded from our Valuation will be any additional value attributable to goodwill, or to fixtures and fittings which are only of value in situ to the present occupier.

15. When valuing two or more properties, or a portfolio, each property will be valued individually and no allowance will be

made, either positive or negative, should it form part of a larger disposal. The total stated will be the aggregate of the individual Market Values.

16. In the case of a Property where there is a distressed loan we will not take account of any possible effect that the

appointment of either an Administrative Receiver or a Law of Property Act Receiver might have on the perception of the Property in the market and its/their subsequent valuation, or the ability of such a Receiver to realise the value of the property(ies) in either of these scenarios.

17. No allowance will have been made for rights, obligations or liabilities arising under the Defective Premises Act 1972,

and it will be assumed that all fixed plant and machinery and the installation thereof complies with the relevant UK and EEC legislation.

18. Our Valuation will be based on market evidence which has come into our possession from numerous sources,

including other agents and valuers and from time to time this information is provided verbally. Some comes from databases such as the Land Registry or computer databases to which Savills subscribes. In all cases, other than where we have had a direct involvement with the transactions being used as comparables in our Report, we are unable to warrant that the information on which we have relied is correct.


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3. Further General Assumptions applicable to residential Valuations only

The following general assumptions apply to residential property valuations. For the avoidance of doubt, these are in addition to the general assumptions at Appendix 2.

1. Where the Property comprises leasehold flats or maisonettes, unless instructed or otherwise aware to the contrary, we will assume that:

a) The costs of repairs and maintenance or the building and grounds are shared equitably between the flats and

maisonettes.

b) There are suitable enforceable covenants between all leaseholders or through the landlord or the owner.

c) There are no onerous liabilities outstanding.

d) There are no substantial defects or other matters requiring expenditure (in excess of the current amount of assumed service charge payable on an annual basis), expected to result in charges to the leaseholder, or owner of the Property, during the next five years, equivalent to 10% or more of the reported Market Value.

2. Where the dwelling is leasehold and it is not possible to inspect the lease or details have not been provided to us, the

following further assumptions will be made, unless instructed to the contrary:

a) The unexpired term of the lease is 70 years, and no action has been taken by any eligible party with a view to acquiring the freehold or to extending the lease term.

b) That there are no exceptionally onerous covenants upon the leaseholder.

c) The lease cannot be determined except on the grounds of a serious breach of covenants in the existing lease

agreement.

d) If there are separate freeholders, head and/or other sub-head leaseholders, the terms and conditions of all the leases are in the same form and contain the same terms and conditions.

e) The lease terms are mutually enforceable against all parties concerned.

f) There are no breaches of covenants or disputes between the various interests concerned.

g) The leases of all the properties in the building/development are materially the same.

h) The ground rent stated or assumed is not subject to review and is payable throughout the expired lease term.

i) In the case of blocks of flats or maisonettes of over six dwellings, the freeholder manages the property directly or

there is an appropriate management structure in place.


6

j) There is a dutyholder, as defined in the Control of Asbestos Regulations 2006, and there are in place an asbestos register and effective management plan, which does not require any immediate expenditure, pose a significant risk to health or breach of the Health and Safety Executive (HSE) regulations.

k) Where the Property forms part of a mixed residential or commercially used block or development, there will be no

significant changes in the existing pattern of use.

l) Where the Property forms part of a development containing separate blocks of dwellings, the lease terms of the Property apply only to the block. There will be no requirement to contribute towards costs relating to the other parts of the development, other than in respect of common roads, paths, communal grounds and services.

m) Where the Property forms part of a larger development, the ownership of which has since been divided, all

necessary rights and reservations have been reserved.

n) There are no unusual restrictions on assignment or sub-letting of the Property for residential purposes.

o) There are no outstanding claims or litigation concerning the lease of the Property or any others within the same development.

p) Where the Property benefits from additional facilities within a development, the lease makes adequate provision

for the lessee to continue to enjoy them with exceptional restriction, for the facilities to be maintained adequately, and that there are no charges over and above the service charge for such use and maintenance.

3. In respect of insurance the following assumptions will be made, unless instructed otherwise:

a) The Property can be insured under all-risks cover for the current reinstatement cost and is available on normal

terms.

b) There are no outstanding claims or disputes.

c) Where individuals in a block make separate insurance arrangements, the leases make provision for mutual enforceability of insurance and repairing obligations

d) Any landlord responsible for insurance is required to rebuild the Property with the alterations that may be

necessary to comply with current Building Regulations and planning requirements. June 2016


James Tillier FRICS Matthew Sale BSc (Hons) MRICS Director Associate Director

+44 (0) 1444 446 031 +44 (0) 7812 965 424 [email protected]

+44 (0) 1444 446 034 +44 (0) 7812 965 427 [email protected]

savills.co.uk

mailto:@savills.com


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