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AVMs could serve more than 60 per cent of mortgages as tech develops – Hometrack

by: Richard Donnell, director, Hometrack
  • 17/09/2021
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AVMs could serve more than 60 per cent of mortgages as tech develops – Hometrack
Automated valuation models (AVM) were first used in the UK mortgage industry almost 20 years ago and have since become an integral part of the UK mortgage lending business.



Looking ahead there is much more opportunity from wider use of AVMs and the extended use of data and analytics to inform a range of collateral risk decisions for banks.


Expanded uses

Having joined Hometrack over 15 years ago, I have seen this technology expand and grow alongside the increasing digitisation of the mortgage journey, delivering major benefits for banks and their customers and supporting ever-increasing regulatory demands for active risk management.

The first major lenders started using AVMs in the early 2000s to deliver accurate and cost-effective valuations for remortgages and further advances for fee-free products. The application of AVMs has expanded rapidly and the move into home purchase originations started in 2014, with AVMs now used for ‘decisions in principle’ as part of the digital consumer journey.

Alongside these front end uses, AVMs have always been used to drive regular, address level valuations for entire mortgage portfolios. This has enabled more accurate provisioning against losses and for a range of capital and regulatory reporting as well as trading of portfolios between businesses.


The basics

In the early days, one of the big fears was whether automated valuations would respond to market changes. Having gone through the global financial crisis and, more recently, the Covid pandemic, real world use shows that AVMs have maintained their reliability and performance over time.

To get the best out of AVMs it is important to know when and where to use them. The most important number an AVM delivers isn’t the valuation, it is the accompanying confidence level of how accurate and reliable the valuation estimate is.

Confidence levels help lenders decide when and where to use AVMs in their decision making. The best performing AVMs are not just great at delivering accurate valuations but their confidence levels are proven to be robust and reliable over the property cycle.


What next for AVMs?

While AVMs have been used for some time now, their use has further to run and there is no reason that AVMs could not be the primary form of valuation for more than 60 per cent of all mortgage originations. Greater use of AVMs will be accompanied by more collateral risk data covering more risk related aspects of the property and the surrounding area to build out from the valuation alone into broader digital valuations that further protect and streamline the journey for both the consumer and the lender.

Physical surveys and valuations will still remain important for a sizable proportion of valuations based on the risk of the property and specific lending decision.

The speed and availability of AVMs and other data will be integral to boosting consumer engagement through a range of digital platforms and this is an area of rapid expansion. With the climate agenda rising fast in people’s minds, the impact on property values and consumer decisions is a whole new area of development for AVMs and collateral risk analysis.

Where the focus on use of AVMs may once have been driven by cost reduction, the ability to use AVMs or digital valuations to assess in real time the accuracy and safety of lending and drive down flight time of a mortgage applications is now more valuable than the cost saving.

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