Roma and Together update LTVs and valuation processes
Roma has increased its loan to value (LTV) by five per cent on residential bridging and will now consider applications up to 75 per cent, returning to pre-Covid levels.
It is also working with selected packagers to allow them to instruct their own valuations which should allow faster completions and give packagers more control over cases.
Previously Roma had controlled all the valuation instructions.
Nick Jones, commercial director of Roma Finance, said: “In 2021, it is essential we continue to make advances with products, processes and technology to maintain the speed intermediaries and customers need for their property investments.
“These enhancements will allow more customers to access short term finance and enable even faster case processing and completions.”
Together increases AVM use
Meanwhile, Together has updated its criteria to allow more automatic property valuations which it expects will reduce costs and speed up mortgage applications.
It believes more than half its cases can now be completed through digital valuations, up from a third in 2019.
The rules apply across all personal finance products, with a maximum LTV of 70 per cent or 65 per cent for regulated bridging, and to a maximum loan size of £250,000 and a confidence level of 5+.
The lender now has no maximum property value on automatic valuations for regulated bridging and first charge loans, while for second charge loans this has increased to £750,000.
Previously the limit for all application was £500,000.
For home purchases, Together will accept the minimum Hometrack valuation or purchase price, or the council valuation for right to buy properties.
Physical valuations will still be needed on shared ownership properties, those of non-standard construction and new-builds, it added.
Head of intermediary sales Sundeep Patel (pictured) said: “We estimate that changes to our rules mean we will be able to use Hometrack’s automated valuation model in more than 50 per cent of personal finance applications, up from about a third of cases in 2019.
“It’s an incredibly useful tool, particularly under the current Covid-related lockdown restrictions, and could reduce costs for intermediaries submitting cases to us, while speeding up the application process by removing the time it takes for physical valuations of properties.”
Santander warns valuations may be slower in lockdown
However, it has warned that these may take longer than usual and this could have a knock-on effect on mortgage offers.
In a message on its broker portal, the lender said: “Further to the national lockdown announcement by the UK government on Monday 4 January, our valuation partners have confirmed that they continue to provide valuation services at this time in England, Northern Ireland, Scotland and Wales.
“However, please be aware that valuations could take longer than usual which could impact the time to mortgage offer.
“Thank you once again for your continued support and patience during this time.”
Helen Harrison, head of intermediary distribution at Santander, said: “Working with our valuation team, we’re pleased to be able to continue to progress mortgage applications during the latest lockdown.
“While valuations may take longer, for example due to problems entering a property where an occupant is self-isolating, we are working hard to ensure as many customers as possible can continue as quickly as possible on their homeownership journey.”
Surveyors confident of continuing
With the housing market allowed to continue operating during the latest set of restrictions it is hoped services will be largely unaffected, especially as the vast wave of homebuyers are aiming to take advantage of the stamp duty holiday which ends on 31 March continues.
Countrywide Surveying Services, one of the largest surveyors in the UK, confirmed yesterday that its operations would not be affected.
SDL Surveying today confirmed its surveyors were still able to value and survey homes.
It has also toughened up protocols for in-depth assessments such as homebuyer reports by requiring all residents to be outside the property during the internal assessment.
The firm is also urging its surveyors to contact all forthcoming appointments, to highlight the changes and check whether occupants have had any changes in their circumstances, for example, a renewed need to shield.
Last month lender MT Finance highlighted that it was starting to see surveyors and solicitors withdrawing from meetings or visits as the latest coronavirus wave took hold.
Valuers and solicitors hesitating as new Covid strain takes hold – MT Finance
The specialist lender noted that it was starting to see firms operating in these sectors becoming more hesitant about working practices in the current situation.
MT Finance commercial director Gareth Lewis (pictured) revealed the developments when commenting on the HMRC property transaction figures for November.
“We expect the market to go from strength to strength in the New Year as long as stricter lockdowns don’t preclude people from doing their jobs, such as carrying out valuations,” he said.
“Concerns over the new strain of Covid could prove to be a stumbling block.
“We have already had a couple of valuations pulled at the last minute where surveyors have been able to view a property but chosen not to, as well as solicitors saying they are uncomfortable about meeting clients face-to-face.”
‘Could cause severe delays’
Lewis told Specialist Lending Solutions the firm had seen a number of issues over both legals and surveying, with the goalposts moving slightly.
And he warned while lenders could be flexible, changes in approach could present delays given the current need to meet the 31 March stamp duty holiday deadline.
“A few surveyors have postponed inspections and one solicitor refused to hold a face-to-face meeting with our client, resorting to Skype instead,” he said.
“’The impact could be serious in both these instances if you have an inflexible lender, but we are well placed to work with these challenges to find a resolution with alternative surveyors and flexibility as to who can witness documentation.
“However, these issues can cause severe delays given timescales and pressures to complete,” he added.
Lendy valuer settles £625k PII claim for £2m over-valuation as company boat sold
It is believed to be the first successful action taken against a valuer by the administrators to help recover short falls in loan recoveries, and was revealed in the latest half-year update.
Administrators have been taking action in many ways, including on personal and corporate guarantees or making claims for negligence against third-party professional advisers.
In this case, following a mediation meeting in October, the administrators agreed a settlement with the valuer and insurer for £625,000.
According to details on the Lendy website, the property in Leatherhead, Surrey was valued at £4.25m in February 2016 with a loan of £2.975m granted to refinance the original loan help complete works on it.
However, the developer initially completed the works without planning permission which required further funds from Lendy to bring it back into line with regulations.
Eventually, a valuation from a third party of £2.25m was given in early 2018 as the top sale price in that area and a buyer purchased the property for £2.1m – leaving investors £1m short.
Lendy loans overvalued
Speaking at the NARA property receivers conference last month, RSM Restructuring Advisory partner Damian Webb who is overseeing the recovery of as much capital as possible for investors, said one of the biggest issues at Lendy was the accuracy of valuations.
He confirmed that only around 30 per cent of the original values are being collected on average against outstanding loans.
Speaking about wider issues with valuations within the peer-to-peer sector, and not specifically those at Lendy, Webb noted a lack of processes where borrowers were allowed to appoint their own valuer.
“The borrower would then say the value needs to be ‘X’ and the valuer would sign off on it and you would consistently see valuers working on a range of projects for the same lender,” Webb said.
“The P2P lenders would also lean on the valuers as they wanted to deploy the capital, so it wasn’t just the borrowers.
“So they would encourage the valuation level and would ignore things such as connected party leases, they wouldn’t read the title documentation properly, they wouldn’t engage properly.”
In the bi-annual update, Webb also revealed the administrators had taken possession of the company Stingher Rib boat and sold it for £50,000.
In June a worldwide freezing injunction over the assets of the former directors, Liam Brooke and Tim Gordon was obtained, as well as proprietary injunctions on properties owned by companies linked to the directors.
Proceedings were commenced against Liam Brooke, Tim Gordon, RFP Holdings Limited and LP Alhambra Limited and during the period these claims have been progressed, the administrators added.
Overall the Lendy loan book has 29 development and bridging finance loans outstanding worth £117m, with 24 of these in formal insolvency proceedings.
The administrators have so far reclaimed 18 loans worth £16.8m.
The administration has been extended by 36 months to midnight on 23 May 2023 but RSM said it was not possible to ascertain at present when it would actually end.
Pepper allows advisers to kick start valuations
Pepper automatically instructs a valuation once it has assessed all of the decision-making documents, but the change means advisers can choose to instruct the valuation earlier to speed the progress of the case.
Advisers are free to use any of the valuers on the Legal & General panel which is used by Pepper.
“So, if a broker is confident their customer’s documents will be verified, they can get a head-start by instructing the valuation sooner,” the lender said.
Paul Adams, sales director at Pepper Money, said it was an important tool for brokers as it meant they could give their customers an advantage in a competitive market where time is of the essence.
“Why let your customer wait for a valuation when you are confident a case is going to proceed?” he said.
“We give brokers more control over the progress of their applications by instructing their own valuations as soon as the application has been reviewed, which means they no longer have to wait for all of the documents to be reviewed to get the ball rolling on the valuation.”
Nothing to stop remote valuations with securitisations, lenders need to get behind it – Ward
As it turns out the problem was fairly short-lived and attention moved into other areas including dealing with a surprising uptick in mortgage volumes on the back of the stamp duty holiday.
This meant little real time was given to better ways for risk assessment going forward or future proofing businesses against future valuation lockdowns.
This needs to change.
We are now in a new national lockdown in England, after Wales just exited its shorter version.
Disappointing as this is to be repeating lockdowns, it can’t come as a total surprise to anyone following the data and political responses around the world.
So turning to valuations, how important are they? Very is the short answer.
When making a mortgage, from a risk perspective there are only a handful of things that really matter:
- Does the borrower exist?
- Does the property exist?
- Is the property being offered as security the same as the one being valued and subject to a legal charge? It may seem obvious but believe me ‘accidents’ have been made in this respect before.
- And, taking all relevant things into account, is the value correct?
- Have I got a valid, subsisting first legal charge?
Focussing on the valuation
Ideally lenders like to send a qualified valuer to visit the property.
This has been getting harder as valuers are an ageing population and there are now far fewer of them practicing. Professional Indemnity Insurance is also becoming scarcer.
At the same time, technology has been advancing.
We have had automated valuation models (AVM) for many years now and accessibility of data and sophisticated technology has improved the risk management process.
Some lenders are happy to rely just on AVMs for lending, particularly where the loan is low risk such as a sub-60 per cent loan to value (LTV).
While that’s all well and good I think there are better ways to improve the risk process.
This can be by incorporating a valuation review, which uses other data sets such as an AVM; Land Registry data, showing where the title is for the property that needs valuing incorporated with Ordnance Survey map data; and date and value of last sale.
Environment Agency data is also necessary for flood, mining and subsidence, as well as comparable tools that search for similar properties, either for sale or sold, with pictures both internal and external, satellite and street imagery.
So, if a qualified valuer, or the lender for that matter, can access all of this information it is possible to deal with all but the last one on my list of five bullet points above.
And if a lender is unhappy to take this leap into a new way of assessing the risk of a property it is entirely possible to take out insurance protection against the value being wrong and also covering the final bullet point being the first legal charge. Game set and match.
This is where the industry is heading, and some forward-thinking lenders have already got there.
Others are lagging.
But what about securitisation?
I often hear that this is a barrier to implementation and less understood rules about the US Dodd Frank Act are paraded as part of the problem.
Simply put they are not and there is nothing inherently in securitisations that stop us from using these more developed risk management techniques.
It frustrates me that, as one of the earliest practitioners in the European securitisation markets, we thought of ourselves as innovative and cutting-edge.
But that was 1985 and the residential mortgage backed securities (RMBS) market hasn’t kept pace with risk management techniques and technology.
In effect the RMBS market still relies on 1985 processes. It is time they were revisited.
This is not just about lockdown and scarcity of valuers but focussing on the real risks and adopting better practices to ensure better risk outcomes.
Lenders, originators and issuers need to spend time with their investment bank funding partners in educating them about how things could be done better and then take this to the rating agencies. This will not change unless lenders get behind it.
The other benefit of course is that future lockdowns needn’t stop pipelines completing if physical valuations get suspended again.
LendInvest extends desktop valuations to bridging
It is the latest lender to make such a move as the second lockdown in England begins and as the second wave of the Covid-19 pandemic hits at the start of winter.
While valuers are still allowed to visit properties as part of the restrictions, it has been noted that times to agree appointments are extending and there is concern the number of visits blocked by isolating residents will increase.
LendInvest is making desktop valuations available for borrowers seeking residential bridging and auction products on loan sizes up to £250,000 with a maximum loan to value (LTV) of 65 per cent.
These valuations will be available for properties in England, Wales and Scotland up to a value of £1m.
It will be utilising desktop valuations through Connells to ascertain the security value, in absence of a valuer being able to make a physical visit to the property.
LendInvest director for bridging Justin Trowse said: “As we continue to operate through unpredictable times, it is imperative to be prepared for any sudden changes to the way we are able to work.
“While at this time physical valuations are permitted to go ahead, we realise we must be equipped for any eventuality should that change in the future.
“Adding the capability to utilise desktop valuations for more of our product suite allows us to stay one step ahead, and ensure we can deliver the finance our borrowers need with the same speed and flexibility we always have.”
Lenders will use AVMs where physical surveys not possible during lockdown
The government has confirmed surveyors will be allowed to continue entering properties during the lockdown providing they adhere to social distancing and other restrictions.
However, in the event that more surveyors are unable to enter properties due to residents isolating or for other reasons, the lenders said they will be able to continue conducting valuations.
In the first lockdown earlier this year TAB used AVM or desktop valuation reports for suitable residential properties with these audited by TAB and its partners on a same-day turnaround.
“TAB will reinstate this method for the next four weeks and, as the situation develops, we will continue to monitor this closely and respond appropriately and communicate transparently with everyone,” it said.
Founder and CEO Duncan Kreeger added: “We are very aware that these government guidelines – while necessary from a public health perspective – can cause people huge stress and anxiety and we are committed to providing a seamless experience for our customers.”
Meanwhile, Together said: “Valuations will be subject to Covid-secure safety protocols, and we will be able to use desktop modelling and automatic valuations, when needed.
“We will also be able to use our in-house legal team to make sure applications can be processed as quickly as possible.”
Its personal finance CEO Pete Ball added: “We are committed to making our customers’ ambitions a reality by continuing to provide a normal service throughout the second lockdown.”
Capital market restrictions
Last week, Specialist Lending Solutions revealed that a working group from the sector was attempting to reach an agreement for lenders funded through the capital markets and securitisations to be able to undertake remote valuations in some circumstances.
However, Fleet Mortgages and Keystone Property Finance confirmed there was no chance of this happening during the current period.
Specialist lenders working with capital markets to accept remote valuations
However, although the lenders noted progress has been made, there is unlikely to be any change in policy during the current coronavirus wave.
While all mortgage lenders were affected by the cessation of in-person valuations during the first lockdown earlier this year, those who are solely funded through capital markets and funding lines were particularly badly hit.
They were unable to introduce remote solutions or automated valuation models that banks and building societies were able to use to take some of the strain off their caseloads.
‘Little appetite for change’
Speaking on the latest Brightstar video debate, Fleet Mortgages distribution director Steve Cox said: “For those of us that rely on capital markets and funding lines the honest and brutal answer is there is currently no alternative to physical valuations.
“That isn’t likely to change fast. It’s not a Fleet thing or a Keystone thing, it’s not even funders objecting to it.
“It is other people in the chain of securitisation that just won’t accept anything other than a physical valuation.”
Keystone Property Finance CEO David Whittaker explained the reason for this was a result of interventions following the credit crunch put in place in the USA, and while there was hope, it was still some way off.
“There’s little appetite currently from the capital markets to change that,” he said.
“We all did a lot of work during the first phase of lockdown to change the capital market’s view and that’s an ongoing project because we see it will come round again in different forms, so not automated valuation models (AVMs) but remote valuations.
“Tony Ward chairman at Landbay did a lot of good work on it and it’s a project we’re all working on, but we haven’t been able to land it in time for this round two.
“But you’ve got to expect there will be variations of this virus going forward and therefore having a remote valuation solution maybe possible but not in time to help us out in this current cycle.”
Cox added that it any alternative to physical valuations was more likely to come in for the remortgage market, when it was less important to the client to have an in-person viewing.
Limits on specialist lending
OneSavings Bank sales director Adrian Moloney also joined the panel, hosted by Brightstar CEO Rob Jupp.
Moloney noted that while such a move would be important for non-bank lenders, there were still many situations where on physical valuations could work.
“In the specialist market there are still great limitations on what a desktop valuation can give you,” Moloney said.
“In the markets we all play in there’s freehold blocks, there’s houses in multiple occupation (HMOs), there’s certain new builds that desktops can’t pick up.”
He noted some banks may start using the technology, but it was unlikely to be suitable for vast numbers of cases.
“It would be a very different prospect in terms of getting desktops switched on in the specialist market now with the volumes of people who want to purchase or refinance properties,” he said.
“I think valuers are doing a really good job keeping us informed.
“We’ve got to keep really patient with them, it’s taking about five or six days to get appointment booked in with clients so a survey takes a bit longer but it’s for brokers to help manage clients and us to be transparent about turnaround times,” he concluded.
Two week delays common for valuations so plan ahead – Arnold
In an environment with so much uncertainty, this just isn’t normal. So, how long can we expect it to last, and what steps can brokers take to make the most of the current environment?
The property market started the year on a positive footing. It was busy before lockdown and returned with a surge in May and June.
The announcement of the stamp duty holiday in July simply turbo-charged this activity and we currently find ourselves in a situation where there isn’t enough capacity in the system to cope with demand.
The latest I have heard is that panel managers are working on delays of two to three weeks to carry out a valuation, but there still appears to be some reticence in outsourcing these valuations to smaller firms.
At Arnold & Baldwin, we got everybody back from furlough very quickly and we are actually now recruiting for more surveyors to handle the demand.
This is an interesting situation as I don’t think anybody truly believes that the market will continue at this pace.
There are so many different events coming up that could really impact things, and the market is in a very vulnerable position.
However quickly the economy recovers from Covid-19, widespread job losses are expected next year and there is a clear correlation between unemployment and property prices.
Then we have Brexit coming up, the impact of which remains completely unknown.
And, of course, there will be other factors like the stamp duty holiday coming to a close at the same time as Help to Buy ending in its current guise and the increase in stamp duty for foreign buyers.
At the same time, there is reason to anticipate some resilience in the property market. We have noticed a change in people’s behaviours regarding moving home.
Whereas many people would previously put off a move because they were waiting for Brexit, or the results of a general election for example, they are no longer being led by external factors but putting their lives and their families first.
Also, whereas people previously made purchase decisions on where they worked, now it’s based on where they want to live.
The process seems to have become more emotive, which could indicate that, while economic factors on a macro level might be negative, people who have the money will still be inclined to move home based on their own personal circumstances.
This is by no means guaranteed, but it is one way that the market could pan out next year.
Planning for speed
But what steps can brokers take to make the most of the boom in activity now?
In such a competitive market, it’s important that your clients are well-prepared when they make an offer on a property.
So work with them on lining up their professional team, including surveyors and solicitors, so that when they find somewhere to buy, they can demonstrate their ability to move quickly.
In order to overcome valuation delays, you could also consider de-coupling any home survey that is requested by your client from the valuation that is required for the mortgage finance.
If you submit a mortgage application requesting just a standard valuation, there is a greater chance of this valuation being carried out remotely without a surveyor needing to visit the property.
This should mean that you are more likely to avoid being stuck in a queue for a physical valuation and that the enquiry can be processed more quickly.
Your client could then instruct a Homebuyers Survey or a Building Survey, for peace of mind, separately from the mortgage valuation, and this could provide you an opportunity to earn a referral fee.
There are things to think about, of course, and instructing the valuation and the survey separately, rather than together, may be slightly more expensive for your client.
So, it is important that you discuss the options and the considerations and follow the approach that best suits their circumstances and expectations.
Many homebuyers, however, will value a potentially faster process in securing a mortgage offer, particularly in a market where they may be competing with other buyers.