Valuers re-pricing four per cent more properties post-lockdown – Sexton
The introduction of social distancing measures presented a unique challenge to activity in the property market.
Valuers and lenders have worked hard to support the market through this period.
When social distancing guidance and Royal Institution for Chartered Surveyors (RICS) protocols rendered physical property inspections untenable, technological solutions were leveraged to maintain accurate, evidence-based valuations.
Several valuation and surveying firms had already developed their own desktop valuation solutions. By working closely with lenders to agree upon revised risk criteria, these firms were able to support the market by applying this technological solution to the widest possible proportion of the property mortgage types and applications that could be assessed safely and accurately.
These sophisticated desktop solutions more than bridge the gap between Automated Valuation Models (AVMs) and valuations derived via physical inspection.
Through the strictest periods of lockdown, when all non-essential travel was prohibited, this alternative way of working meant some valuation firms could continue to support mortgage lenders, while prioritising the safety and wellbeing of employees, customers and the wider public.
As lockdown regulations eased further, valuation providers implemented a gradual return to physical property inspections, with a range of safety measures in place before and during the inspection.
In accordance with government regulation and guidance from RICS, surveyors must still observe social distancing guidelines, adopt personal protective equipment (PPE) and follow a number of new protocols.
While Covid-19 has transformed the way we all live and work, data shows that contingency and safety measures have minimised the impact on property valuations.
Furthermore, and contrary to speculation based on isolated cases, data from E.surv’s property valuations show that the market remains robust.
In London for instance, Q2 2020, saw a modest two per cent increase in the number of applications submitted with overestimates of value, suggesting that sentiment places the market slightly ahead of where it really is.
Additionally, there is noticeable offshore interest in the UK capital and it’s been well-documented that recent events in Hong Kong may stimulate interest from this area in the coming months.
Looking at the UK as a whole, a similar story can be seen.
London’s figure actually compares favourably to the average for the rest of England and Wales which saw an increase of four per cent in the number of applications submitted with overestimates of value.
That the industry has been innovative and agile enough to overcome the challenges so far, with minimal disruption, is testament to the rigour and sophistication of the mortgage market and the hard work of lenders and valuation firms.
While we have yet to emerge fully from the crisis, the market has exhibited a heartening level of maturity and resilience and there has been a stimulus for innovation that will ultimately benefit all stakeholders.
A significant obstacle to housing market recovery has been removed – Arena
The news came from the Royal Institution of Chartered Surveyors (RICS) which has been at the centre of the mortgage-specific element of this tumultuous time and I am pleased to say the news was good.
It is easy to miss the importance of the announcement with so much going on, but when RICS changes its stance, it affects the entire industry, from borrowers through to those investing in securitised mortgage debt.
Its influence is significant but rarely discussed.
We all remember the chaos following the cessation of physical valuations and their return was a cause to be celebrated. That return was heavily caveated.
There were calls to freeze house price indexes and few recent transactions even to compare. The return to valuations was vital but involved huge uncertainty.
Pricing property in any crisis is difficult, but this crisis is unlike any other.
The response from RICS was to implement a material uncertainty clause on all valuations. That is huge.
If lenders were not already uncertain about the outlook of the economy, here was RICS telling them that the asset base was also subject to similar but current uncertainty.
The impact of this was overwhelmingly positive as it allowed surveyors to value property without looking over their shoulder; this clearly prevented many inevitable down valuations.
Lenders reacted accordingly and reduced their loan to values (LTVs) to account for the increased risk.
As much as people have berated lenders for reducing LTVs, frankly, who can blame them with material uncertainty on valuations and a potential economic crisis looming.
Only the margin-hungry have taken the plunge, but expect those margin hunters to increase in number following last week’s announcement, though this will in no means lead to a return to pre-Covid conditions.
So last week RICS announced the material uncertainty clause would be removed for most valuations.
That is every bit as significant as it sounds and great news for the industry.
Lending is all about risk: the RICS policy change reduced one of those risks significantly. Valuations are now based on an unrestricted market environment with reasonable levels of recent transaction comparables, all valuations that were supported by the prior RICS policy.
Lending risk has just fallen, and that is hugely significant, but this policy change does not remove the uncertainty surrounding the future of the housing market, the future of employment and the economy as a whole.
We can expect an improvement in the risk appetite from lenders following this announcement but these improvements will only come from those that were already considering lending at higher LTVs thanks to the high margins available in that sector.
Recovering from this crisis will take some time and there are many obstacles to overcome yet but thankfully, RICS has just removed a rather significant one.
RICS removes ‘material uncertainty clause’ for residential valuations
The trade body issued the clause on 19 March, which acknowledged the unprecedented circumstances presented by Covid-19 and therefore attached less weight to previous market evidence for valuations.
Mortgage Solutions this week reported how valuers had been using the clause to justify huge down valuations.
A forum of firms had been set up by RICS to consider on a weekly basis whether the material valuation clause should remain and has this week decided to remove it in relation to residential property and land.
Responding to the decision, Joe Arnold, managing director at Arnold & Baldwin Chartered Surveyors, said: “We are now in a position where we can see that the lockdown was just a pause on the market and not a complete reset.
“We now have more than two months’ worth of transactional evidence to show that the market has returned.
“Indeed in some areas, such as parts of London and the wider South East, the market is actually stronger now than it was prior to lockdown and the temporary reduction in Stamp Duty Land Tax will provide a further fillip for property values.”
However, he added that there was still clearly uncertainty.
“We do not know, for example, what impact increased unemployment will have on the market – but this is more standard market uncertainty than the material uncertainty we experienced earlier in the year.
“It is worth noting that surveyors will still have the option to apply the MUC to a valuation if they have particular concerns about the asset or area.
“This is likely to be reserved for properties where there has been less transactional evidence in recent weeks such as, for example, houses in multiple occupation (HMOs) or very high value properties,” he added.
Hope Capital completes first AVM case; Catalyst accepts short form vals
Hope Capital has completed its first case using an automated valuation model (AVM) on a residential property in Kent which was purchased at auction.
As a result, the borrower needed access to funds quickly and a loan for £163,350 at 55 per cent loan to value (LTV) was issued within seven working days from enquiry to completion.
Synergy Commercial Finance advised on the loan and Hope worked directly with the borrower to speed the application process up.
Piotr Twaits, sales director for Synergy Commercial Finance, said his team had worked well with Hope Capital, and the lender had been able to deliver quickly when necessary.
Hope Capital CEO Jonathan Sealey (pictured) added: “Embracing this technology means we are able to complete loans much more quickly where necessary, without waiting for a full valuation.
“With Synergy, we also knew we were working with a trusted partner, and were able to progress the loan rapidly as a result.”
Meanwhile, Catalyst Property Finance is now accepting short form valuations.
These are available for residential properties in major cities with a value up to £500,000 nationally or £750,000 in London, with light refurbishment allowed.
Catalyst Property Finance head of credit Matt Gillon promised there would be further innovation from the lender.
“We are always looking for ways to improve our bridging finance proposition for our broker partners and their clients,” he said.
“We have a number of new improvement initiatives to announce in 2020 and into 2021; the first being the acceptance of short form valuations for suitable properties.”
He continued: “One of the benefits is that they speed up the loan application process, typically by two to three days, which is a huge advantage for those borrowers needing quick access to finance. What’s more, there’s a real cost saving for borrowers.”
Nationwide and Santander ask brokers for dead case updates
The lenders both made the requests in updates on their valuations process, noting they are on course to complete all on hold physical valuations by 12 June.
Nationwide and its buy-to-let arm The Mortgage Works asked brokers to let them know if clients were not proceeding with their mortgage applications.
Regarding valuations, the lenders said where they had been unable to make any contact, they had either left a message or sent a text to the applicant or vendor/estate agent.
They said before calling about valuations to contact whoever was given for access to the property and to check the details supplied.
Santander also asked for advisers to inform it “urgently” if cases were no longer proceeding.
It said valuations will be booked in chronological order, with the oldest applications booked in first. Once the valuation has been booked, brokers will be informed.
“Please be aware that receiving a valuation booking date may take longer than usual as our valuation partners need to conduct a detailed government safety assessment as part of the booking process. We thank you for your patience.” it added.
TML reintroduces HMOs and MUBs; LendInvest ups max LTV – round-up
TML has confirmed to Mortgage Solutions that it is now able to conduct valuations on houses in multiple occupation (HMOs) and multi-unit blocks (MUBs).
This has allowed the lender to begin accepting new applications for these property types again.
Last month TML introduced desktop valuations which enabled the lender to consider LTVs up to 75 per cent on new and pipeline cases but certain property types were excluded, including HMOs and MUBs.
TML sales director Steve Griffiths (pictured) said: “We’re delighted that we’re now able to offer physical valuations for HMO and MUB buy-to-let applications in England as the market begins its slow return to a new normal.
“Our team have worked hard to support brokers by offering higher LTV and desktop valuations throughout the crisis, and it is great to see how the industry is working together to provide workable borrowing solutions for buy-to-let landlords while ensuring the safety of our teams.”
LendInvest has updated its buy-to-let product range and increased the maximum LTV to 75 per cent as valuations resume.
Two-year fixed rates start at 2.99 per cent available up to 65 per cent LTV and 3.29 per cent up to 70 per cent LTV, with a maximum loan size of £750,000.
The lender has also reintroduced its five-year fixed rate at 75 per cent LTV product, which will be available at a rate of 3.99 per cent.
Affordability is calculated at an interest cover ratio (ICR) of five per cent against the total gross loan amount, and the lender has adjusted its definition of small HMO to six bedrooms.
LendInvest director for buy-to-let Andy Virgo said: “It is encouraging to see the housing industry start shifting safely back into gear this week, and the team are primed and ready to hit the ground running with this new refresh to our product range.”
HTB ups lending to 75 per cent LTV as valuations return
The lender is increasing its limit from 65 per cent LTV, but has added further restrictions including loan size and interest cover ratio (ICR) caps for higher LTV levels.
All buy-to-let (BTL), houses in multiple occupation (HMO) and semi-commercial deals are eligible for 65 per cent LTV providing they meet HTB’s standard criteria.
For 70 per cent LTV, there is a maximum loan of £3m, an increased ICR by 10 per cent or six-months’ worth of interest is to be placed on account for the first 12 months of the loan.
The borrower must also have a BTL track record and have taken no payment holidays across their portfolio.
At 75 per cent LTV the maximum loan size is cut further to £750,000 in London and £550,000 nationally and ICR levels have been increased by 15 per cent.
The property must have been used as a rental property recently. New build, heavily refurbished properties and studio flats are excluded.
Cases will only be accepted for purchase deals or minimum capital raise refinances. Onceagain the borrower must have a BTL track record and have taken no payment holidays across their portfolio.
Right properties and borrowers
HTB managing director Charles McDowell (pictured) said: “It is more important than ever that we continually review our lending criteria as more information comes to light.
“With immediate effect we are increasing our maximum LTV to 75 per cent for the right type of deals – the right properties, the right yields and the right borrowers.”
Sales director Marcus Dussard added that the team was excited about introducing the changes and resuming work with brokers.
Shawbrook begins physical valuations and Skipton International returns
Like many other lenders, the bank said it was introducing safety protocols to permit valuations to take place.
These include occupants vacating the property before inspection, surveyors wearing the appropriate personal protective equipment (PPE) & maintaining social distancing.
Shawbrook said it will also continue to encourage the use of desktop valuations where appropriate.
It added that allowing physical valuations means it can progress cases for houses in multiple occupation (HMO) and more complex properties, meaning it can restore some of the support for investors in this space.
Head of sales for property division Gavin Seaholme (pictured) noted that automated valuation models (AVMs) and desktop valuations will remain in place, but they were not always viable.
“This was always a really challenging point as we continued to support the market by keeping our doors open and lending and it’s fantastic news that our panel valuers are now back out there doing what they do best,” he said.
“Now with the right safety protocols in place, the resumption of physical valuation inspections brings back some much-needed stability for our brokers and their clients.”
Meanwhile, Skipton International has returned to the remortgage market with its offering for overseas investors.
It is initially accepting applications for remortgages, with a maximum loan to value (LTV) of 60 per cent.
The lender had stopped accepting mortgage applications as it was unable to complete in-person valuations.
Roger Hughes, business development manager at Skipton International said: “Prior to the Covid-19 pandemic, we were seeing strong demand from overseas residents for our UK buy-to-let mortgages.
“We hope our return to the remortgage market will provide an attractive offering for buy-to-let investors.”
Valuations backlog highlights need to recruit more and younger surveyors – Brett
This is of course fantastic news and will help to kick start the mortgage market again.
It is also good news for many non-bank lenders whose funders insist on physical inspections, as it will enable those who could not, to lend once again.
In among the good news, there is a ‘but’ though. While it will get the market moving it may not be as soon or as quickly as we would all like.
There is a massive backlog of surveys in the system as well as lenders’ existing pipeline of borrowers to deal with.
Zoopla has reported that more than 370,000 house transactions could had been paused, while Mortgage Solutions interviewed a number of firms earlier in the week and estimated that the backlog could take at least two-months to clear.
As we have been in lockdown for more than seven weeks at the point of writing, this two-months could indeed prove to be an under-estimation.
It is very welcome news that surveyors can once again start to value properties, although some have already expressed wariness on entering houses of multiple occupation (HMOs) again.
Since the lockdown, lenders have been working through their pipeline of mortgage cases. While mortgages could still be underwritten, many could not reach completion due to the lack of a survey.
Landbay itself has many hundreds of surveys out with valuers waiting for them to be able to restart visiting properties. Multiply this many times over across the industry and it’s easy to see that there is a huge backlog waiting to be done.
Add to that the issue that not every surveyor will be back straight away. Our valuer population is typically in their fifties and many may still be self-isolating.
Others may be looking after children and be unable to leave the home and of course there is the question of accessing appropriate personal protective equipment (PPE).
While some companies and surveyors will, of course, be very keen to get back to work, what it adds up to is that there is a significant backlog of properties to be valued and fewer people to value them.
It has to raise the question of: if you instruct a valuation tomorrow, just how long will it take until that property is valued?
How to deal with valuations is a challenge that the industry has wrestled with since the credit crunch when valuers were laid off in their droves; we have missed them ever since.
Technology has moved on a lot in that time – desktop valuations and automated valuation models (AVMs) have improved significantly.
The lockdown has had a dramatic impact on increasing their use, particularly by mainstream lenders, but we are still faced with the issue that these models are not suitable for every property and some lenders’ funders just will not allow them.
We are all very pleased to see our valuers back. They are the lynch pin around which so much of our industry relies and the drive to recruit more and younger surveyors has never been more vital than it is now.
L&G Surveying Services and Connells confirm physical valuations to restart
Banks have already begun writing to brokers to tell them valuations are being booked in for mortgage applications that had stalled due to the government’s lockdown restrictions.
But mortgage experts warned it could take some time to get up to date with the pipeline of applications that require a survey.
Kevin Roberts, director, Legal & General Mortgage Club, said: “From my conversations with lenders and surveyors across the industry, we estimate that there are around 60,000 to 65,000 valuations which have been put on hold due to the Covid-19 crisis and the lockdown.
“This will be an immediate hurdle for the industry to overcome, but it’s clear that lenders and surveyors are already working together closely to address this backlog.
“Advisers will have an important role to play as the lockdown is eased, keeping their clients informed but also managing the expectations of borrowers – particularly as reopening the housing market won’t be like the flick of a light switch. However, the indication from the industry is that this backlog could take just a few weeks to be addressed.”
Metropolis Surveyors’ commercial director Chris Bramham, however, said it could take up to two months to get back to serviceable levels of survey requests.
A spokeswoman for Connells group said: “Following latest Government advice, from Monday 18 May Connells Survey & Valuation will return to carrying out physical valuations in England.
“Valuations will only take place when property inspections can be conducted safely for both valuer and customer and in a ‘Covid-19 secure’ manner.”
E.surv said its plans were still being finalised but it was “becoming more of a possibility”.
Richard Sexton, director, business development, e.surv, said: “The driving factors are still the government guidance and RICS Best practice. The industry has obtained much greater clarity in both these areas after some initial mixed messages in the last 48 hours.
“We believe we have a clear road map back to undertaking inspections, provided our own risk assessment indicates this can be done safely for all parties and of course the occupant is willing to allow the process to go ahead. In reality, we are entering a hybrid period where physical and remote valuations will need to continue side by side for some time.”