Over the past nine years UK property prices have risen by a staggering 160 per cent and until quarter 3 of 2004 this trend looked set to continue. Then successive interest rate rises finally cooled demand and absolute numbers of sales have fallen since.
Recent figures confirmed that supply is on average increasing. Any economist will tell you that inevitably this combination of factors must result in slowed or reversed growth.
So, what happens now? Scare-mongering ‘property crash’ headlines still emerge from time to time. How-ever, the good news is that any review of the previous downturns in the housing market will highlight that they were caused by a combination of factors – economic recession, steeply rising unemployment and significant interest rate rises. There is little evidence to suggest that these conditions are being recreated.
Looking ahead, Nationwide Building Society predict a continued house price rise of up to 5 per cent in 2005 whereas Halifax suggest average prices will fall by 2 per cent. In the wider estate agency market the con-sensus, if there is one, indicates a stable, relatively low rate growth for the remainder of the year.
Whichever view you endorse, each describe very different circumstances to previous years. Those blessed with the time could review our own output to confirm we have been quietly predicting such a soft landing for the last nine months.
Implications
Perversely, in many cases, expectations of price growth have continued to rise in line with the greater activity levels of up to two years ago – and herein lies the difficulty for the intermediary.
With industry sentiment now broadly in agreement, there remains one area that can cause difficulty in respect of property value and that is applicant expectation. Intermediaries need to know what a specific property is worth ‘today’ – this can make the difference between one product or another, or even a successful application or otherwise.
In line with the rest of the industry, our valuations are in accordance with the guidance we receive from individual lenders (who limit their guidance to reporting style) and the RICS Red Book. The valuer is required to provide an opinion of market value according to a set definition.
We are not in a position to determine an individual valuation policy or definition – they are predetermined standards to which we must adhere.
Clearly, the opinion of the valuer may differ from the proposed purchase price or estimated value supplied. In such circumstances the phrase ‘down valuation’ is sometimes used though as an industry we argue that this phrase is misleading (please don’t shoot the messenger).
Practical steps
On occasion the extent of differential between an estimate and reported figure is apparently significant but primarily it’s a result of an unrealistic estimate. There are steps which can be taken to reduce the possibility of having a ‘down valuation’. Firstly, by ensuring that information provid-ed is verified prior to instruction it is possible to avoid unproductive administration.
Post-valuation, any valuer worth their salt should be prepared to enter into discussions to explain their opinion and consider additional relevant evidence. For example, it’s our policy to consider requests for clarification of the valuation figure provided that additional comparable sales evidence can be supplied.
Sometimes supporting evidence for a higher figure takes the form of estate agents’ marketing appraisals. While such information may apparently support a higher price, it rarely constitutes comparable evidence that can be relied upon. Evidence of actual sale transactions is recognised as the most appropriate comparable evidence for mortgage valuation purposes.
It may also be possible to pre-empt this type of situation. For example, for those intermediaries with whom e.surv have electronic links we have recently arranged access to the entire Land Registry records online. Prior to submitting an instruction, the intermediary may review the same dataset that the valuer will consider when arriving at a valuation.
An alternative is to refer to a valuer’s in-house database. Finally, there are now ‘paid for’ services that can assist. For example, the property index provider Hometrack offers a pre-valuation tool that compares an applicant’s estimate of value to the surrounding property footprint for a small fee.
Accepted evidence
The evidence of a slowdown in the UK property market is now accepted. Occasionally, applicant (and intermediary) expectation has failed to take this into account and apparent large differentials between estimate and valuation figures may increase the level of non-productive applications.
Methods exist for pre-qualifying the likely valuation. Valuation providers see themselves as a route to accessing these types of solution and are keen to be offering this form of assistance.
Richard Sexton is national business development manager at e.surv chartered surveyors
