According to Brightstone Law senior partner Jonathan Newman, valuers are liable for their valuation at the date of issue so any caveats allowing them to backpaddle from their work does not necessarily hold firm in court.
So-called Brexit clauses were put in place following the UK’s vote to leave the EU in June to allow valuers to deflect from their valuations should property prices fall as a result of Brexit.
But Newman said: “A court will test the valuation at the date of lending, not later. Valuers are not currently and never have been responsible for market decline whether as a result of Brexit or any other reason. That begs the question whether a Brexit clause has any legal effect in practice.”
Hope Capital chief executive Jonathan Sealey had warned about the growing side-effects of the clause in a blog post on Specialist Lending Solutions last week.
The problem is, he said, “many lenders in both the short and long-term lending markets are lowering their loan-to-values (LTV) in order to cover themselves in the event that property prices drop and they need to repossess the property.
“It should not be this way,” he said. “It should be down to the valuer to value the property properly and stand by their valuation, then lenders can lend a decent amount against it.”
However, Newman suggested lenders were able to fight the clauses. “I know of at least one lender who will not accept any Brexit caveat, and has told their panel as such. The result- no Brexit clause,” he said.
Brokerage Omega Group questioned whether the use of the clause was still as widespread as Sealey had suggested.
Chief executive Kevin Jones said the surveyors’ professional body, the Royal Institution of Chartered Surveyors, had already told all members to remove any Brexit clause from their caveats.
“It was advised to insert this clause prior to Brexit but now should be removed,” said Jones.
Bridging lender Bridging Finance Solutions, however, said it has seen the clauses but it wasn’t directly affected by them.
Managing director Steve Barber said: “On the basis that we lend up to a maximum of 70% LTV rather than the long-term lenders who lend up to 90% LTV we are less affected,” he said.
He also suggested lenders in different regions would be affected differently. “The Brexit impact is geographically specific and we see the vote having more impact in London and the South East than in the north of England, which forms the majority of the our security property market.”