"We are in a rather different place today and the lingering impact of some strong economic headwinds are also playing a big role in property values across the UK."
It’s been a tumultuous time for the property market over the past three to four months and this has not just been limited to the mortgage products on offer to individual borrowers - it’s also affected the approach that lenders take towards valuations.
Computer says no
Recent years have seen increasing numbers of lenders happy to rely on automated valuation models (AVM) when determining the value of a property for a purchase or remortgage.
There are good reasons for that too. The pandemic obviously played a part, with valuers not always able to physically inspect properties which were being borrowed against. Necessity meant that AVMs would have to take more of the strain as a result of that particular challenge.
AVMs also became more appealing because the market was in a relatively simple place. Irrespective of the pandemic, demand for housing has been strong for some time, certainly to the point that it has outweighed the level of supply open to prospective buyers. This has led to the consistent house price growth that has become a feature of the UK housing market.
Given that situation, it’s been easy to rely on the algorithms utilised by AVMs to get a relatively reliable valuation for properties.
A changing market and the need for accurate valuations
However, we are in a rather different place today and the lingering impact of some strong economic headwinds are also playing a big role in property values across the UK. Market uncertainly makes it far harder to rely on AVMs which may not be able to sufficiently balance those economic changes with the features offered by an individual property.
The number of anomalies that can occur using an AVM are huge. This can go from the comparable data that is being churned out from the automation to the fact that the property may not be structurally sound. Which leads to the question - why would a lender take that risk?
I suppose that would depend on their appetite for risk and what level of LTV they are lending at. The speed in which a case is turned around is also a major factor. However, here at Pure, we finished the year at around 5/6 days from the receipt of an instruction to the delivery of physical valuation report which, in the grand scheme of things, is pretty quick and provides the lenders with the knowledge that the security they are lending on is financially sound.
Our experience tells us that lenders now want far more in-depth information around the properties borrowers want to purchase or refinance. They want data that is accurate and realistic, which they can rely on when setting out the terms of the loan. Ultimately, lenders want to be in the most informed position possible when providing a mortgage, and that’s something that they can only get through a valuation from a skilled and experienced valuer.
In fact, the importance of a physical valuation becomes even more pronounced when the case is more specialist. If there are any elements to the mortgage which means it is not quite vanilla, from the type of property to the borrower themselves, then there will be more risk involved for the lender.
Given that, they are only going to be even keener to ensure they have all the pertinent facts to hand before making a decision.
The personal touch
This isn’t the end for AVMs. They will continue to play an important role in the housing market and are a good demonstration of how technology can be utilised within a property transaction.
Yet there is no substitute for the personal touch. In my opinion, physical valuations can prove invaluable in the current marketplace due to the peace of mind offered by a set of skilled eyes being cast over the secured property. An experienced valuer also has a greater feel for the way the market has shifted, and can offer a more informed and accurate insight into a property than a computer can, particularly in the current market.
This is in everyone’s interest too - that greater level of data may mean that brokers and their clients are able to secure funding which would not have been achievable with a lender adopting a cautious approach as a result of using an AVM.
