For some lenders, as many as 45% of applications are being received from London and the South East, where only 20% of the population live.
This has created some localised hot spots of demand for valuers and we are beginning to see innovation in how lenders and valuers work together to mitigate these effects.
One of the options available to lenders is the Automated Valuation Model (AVM) – an IT solution that lenders fell into and out of love with in the period 2004-2007, repeating a pattern that had occurred in the USA, where the concept originated.
As the market turned, rating agencies began applying quite deep ‘haircuts’ to portfolios that had been valued with a significant AVM component and this in turn made it a less attractive option for securitising lenders. In the UK, GMAC-RFC were the biggest users of the service back in the day.
The main disadvantages are that they do not take into account actual condition and environment and therefore the valuation produced assumes an average condition which may not reflect reality. With less data available from less transactions, like valuers, AVMs have to cast further afield and backwards in time to search for comp data.
I think that lenders will likely rekindle their interest in AVM technology as potentially one of a set of tools to deal with higher volumes – but I am not sure that this time around they will place them in the hands of the sales force or intermediary.
The obvious solution to obtain the best of both worlds is to put the AVM in the hands of the valuer and let him come to some form of judgement about when it is ‘safe’ to rely on it and when not. Perhaps, within limits, the valuer may extend his PI cover to those AVM outputs he is happy to endorse.
This time round, aside from AVMs, there is a huge amount of objective data that can be accessed regarding any particular address – propensity to flood being an obvious one. There are opportunities for data providers and valuers to work together to on behalf of lenders and I hope we see these conversations start to develop quickly.
Richard Sexton is director of business development at e.surv
