One of the most important parts of the property-buying process is the valuation. Pressure from both lenders and borrowers for faster mortgage offers has had a major impact on the valuation process, which is leading to the introduction of new additions to the traditional methods of valuing. But what are they and what will they mean for your clients?
Thirty-five years ago, the level of home ownership was below 50%, mortgage loans were exclusively offered by building societies, many which only had one branch in their local town. Availability was strictly rationed and, typically, the valuation report was not turned around in less than 14 days.
Today, home ownership stands at over 70% and an enormous range of instant mortgage facilities are available from banks, building societies and other new entrants.
The major pressure today is often the turnaround time in which a surveyor can undertake the valuation, visit the property and write up their findings. It falls on the surveyor’s shoulders to ensure the valuation is sent to the lender as quickly as possible. A service standard turnaround time of three to five working days has now become the norm.
Efficiency remains the key, with technology and new practices playing an important role in ensuring the surveying industry keeps up with both lenders’ and buyers’ needs.
Surveyors have had to move with the times and take into account the substantial changes to lending policies that have occurred over the last decade. For example, today there are some circumstances where a lender may not require a surveyor to carry out an on-site inspection at all and may use the previous valuation figures in combination with valuation data of comparable sales in the area together with a more limited inspection.
This is often the case when lenders agree further advances for customers with a low loan to value (LTV). For example, a borrower with a property previously valued at £95,000 may be looking for a further advance to pay for home improvements. If the property has not been altered structurally in the past few years then, rather than carrying out an on-site inspection, a surveyor may use the database and the house price index, currently showing growth of approximately 20% a year , and arrive at a renewed figure of £114,000.
For other mortgage applications with small LTVs there has also been a significant rise in the number of Roadside External Appraisals. These inspections are exactly as the name suggests and the surveyor will literally view the property from the kerbside and draft a short assessment. Again, they will rely on their local knowledge. This process avoids the delay valuers sometimes experience in arranging a convenient appointment with a seller if they need to inspect inside.
It should be of little surprise technology is playing a key role in taking the whole valuation process forward into the 21st century. Perhaps one of the most significant advances comes in the shape of the UK Automated Valuation Report (UKAPES), developed by UK Valuations.
The UKAPES service means there is no need for a surveyor to visit a property. Instead, it provides the mortgage lender or valuer with a desktop valuation.
This innovative new system has been developed from one already widely used by US-based, Countrywide Inc, and provides a market value assessment by analysing up to 13 specific property characteristics drawn from property transactions already in its databank. The quality of this data is high and is provided by a number of lenders including lenders such as Barclays, Woolwich, Lloyds TSB, Cheltenham & Gloucester and Bradford & Bingley. Together they represent around 50% of mortgage lending. This group of lenders will continue to refresh the UKAPES databank with the records of completed and fully-inspected valuations.
In those cases where the lending criteria permits an automated mortgage valuation, there will be a definite reduction in the time taken to produce routine information. This can only benefit all parties involved.
At its present stage of development, the system is already proving to be another useful tool in the surveyor’s kit bag and is releasing surveyor’s time to undertake the more detailed reports for house buyers, which require significant time on site. Lenders can also use automated valuations when they face valuation challenges and when considering re-valuations of large portfolios.
The scope for UKAPES is immense and could potentially be used for online lending and arrears management. With further development, the automated valuation system could be used in the future for risk management for insurers and underwriters, making the home-buying process even more streamlined. It will be interesting to track its development and popularity with both lenders and surveyors over the next decade.
Technology is helping to improve the surveyor’s life in other ways too. For example, we are seeing an increase in remote-based surveyors who are able to dial in information for valuations and surveys, rather than rely on traditional methods of dictation and secretarial typing followed by sign off at a local office.
Although using new technology to speed up the valuation process should be welcomed, in the grand scheme of home buying, the production of a valuation report plays a small part ‘ ordinarily taking only a few days from instruction to completion and submission of the report. One must consider the other aspects, such as credit checking of the mortgage applicants and the conveyancing of the property which all add to the lengthy process.
As lenders increasingly use automated methods of valuation, it is unlikely they will offer a copy of the report to borrowers. At the moment, many lenders disclose a copy of mortgage valuations to applicants, with some notable exceptions. However, too many buyers seem happy to rely on a valuation when to all intents and purposes it is purely a report for the lender to assess if the property is a safe lending risk.
Although buying a home is often the largest purchase people will ever make, too many fail to commission their own in-depth survey to help establish whether the property is suitable for them and their needs and highlight whether there are any defects that may be costly to correct.
Borrowers do not seem to appreciate that finding such defects may provide a legitimate reason for re-negotiation of the price agreed with the vendor. If lenders begin to use desktop valuation in increasing numbers, arranging an independent survey will become even more important for purchasers to consider and will more than occupy the surveyor time released from these brief valuation inspections.
The introduction of Sellers Packs could lead to another big change to the house purchasing process. It will include a general survey called a Home Condition Report, which will provide key information about the property, gathered prior to its entry onto the market. The survey will arm the buyer with relevant information before making the important decision as to whether to make an offer on a property and what offer to make.
It will mean surveyors are brought in at the beginning of the process rather than at the end, and should significantly reduce the number of sales that fall through, eliminating abortive costs. But with property transactions running at around 1.4 million a year, the surveying profession will be stretched to meet the demands of producing the home condition report for the Sellers Pack.
It is believed legislation will set a shelf life for the Home Condition Report and updating could put even more strain on surveyors. While an influx of Government-accredited home inspectors will overcome this part of the capacity constraint, they will not have the skills of a qualified valuation surveyor. The Council of Mortgage Lenders has made it clear lenders should not be forced to rely on this report for their lending purposes.
Clearly, there are still some important issues to be considered if the Sellers Pack is to bring the benefits it is intended to.
Further changes in the industry will eventually lead to the restructuring of the home-buying process. For example, online mortgage decisions are one area impacting on the way homes are purchased.
Not only does this process enable the client to place a confident offer on their chosen property in a much quicker time, but with these kind of results being achieved pressure is on everyone those involved to keep up with the pace.
Whatever the advances in the homebuying process, one thing is certain: valuations will continue to play a key role for lenders and their customers.
The surveying industry will continue to embrace the constantly developing market and advances in technology to ensure it maintains the professional and efficient service required.
It remains our challenge to educate the public on the differences between an independently commissioned survey and one commissioned by the lender.
Peter Bruning is managing director of BBG Surveyors
In certain situations ‘ such as further advances ‘ on-site valuations are no longer necessary.
The UKAPES system allows lenders and valuers to provide an accurate desktop valuation.
Automated valuations mean it is even more important for the buyer to arrange an independent survey.