The technology promises to revolutionise the mortgage market, cutting the time it takes a customer to receive a full mortgage offer. But how do they work? How accurate are they? And how safe are they?
In order to help people understand more about AVM and e-ID, and why they could help when it comes to applying for their next mortgage, Kensington Mortgages has prepared a guide that answers these questions and gives a concise guide to AVM and e-ID:
What is an AVM?
AVM stands for Automated Valuation Model – essentially, a valuation of a property that has been generated by a computer. There has traditionally been a delay between the lender issuing a mortgage decision in principle and a mortgage offer, as a physical valuation has been instructed and carried out to confirm that the property is worth the value that has been stated on the application form. With an AVM, however, this valuation can be instructed immediately and carried out within minutes.
How does it work?
There are several companies that currently provide AVM services and they establish a current market valuation for a property using calculations that are based upon a number of factors such as comparable sales prices from the Land Registry, valuers databases, property characteristics and historical price appreciation.
What does it mean for my mortgage?
If your lender offers you an AVM as opposed to a valuation by a surveyor, it means that your mortgage application can be processed promptly, without the delay associated with a physical valuation, meaning you get your mortgage offer much more quickly.
How is an AVM different from a valuation by a surveyor?
An AVM is based wholly on statistical analysis so it is entirely objective and cannot be influenced by external factors such as customer estimates, recommended purchase prices or loan amount. However, as it bases its decision on relevant comparables in the area it is also less able accurately to value more individual properties where there are fewer similar properties in the immediate vicinity e.g a thatched cottage in a rural location, or a barn conversion.
How accurate is an AVM?
When an AVM is produced for a property it will be accompanied by a statistic expressing how accurate the valuation is likely to be. The accuracy of the AVM is entirely dependent on the quality of the comparable data on which it is based. If there is statistical uncertainty about this data, then the accuracy measure will give an indication of this. A mortgage lender will use an AVM only where it is considered to be an accurate reflection of the value of the property.
How often is the data updated?
Data upon which an AVM is based is updated no less than monthly with sales of comparable properties in the area registered with HM Land Registry together with other external factors considered as part of the modelling process. AVM providers also continually develop and enhance the models that are used to produce their AVMs.
What if I want a more in-depth survey of the property I am buying?
If you would like a more in-depth survey, such as a Homebuyer’s Report or a Full Structural Survey, then you can still request to have one instead of, or perhaps in addition to, an AVM. This could delay the time it takes to receive your mortgage offer. You should also be aware that a lender will reserve the right to query any significant difference in valuation between a survey and AVM.
What is e-ID?
In order to carry out a financial transaction on your behalf, a mortgage lender must verify your identity and confirm where you live. This has traditionally been done by requesting documents such as utility or council tax bills, passports, driving licences etc that are registered in your name to your address – but this method understandably adds time to the process, particularly if the application already uses an AVM. However, lenders also have access to information from the electoral roll and credit reference agencies and this independently obtained information can be used to verify who you are and where you live. This is known as electronic identification verification, or more simply an e-ID.
It feels a lot like Big Brother is watching…
Not at all. Lenders may only access this information if you give them permission to do so during the application, and the data can only be used for the purpose of verifying your identity for the purposes of your mortgage application. Data used for e-IDs has been available for many years and is protected by the Data Protection Act. It is only recently that lenders have begun to use this data to enhance the service they provide to customers and any use of it falls within the Act.
How safe is it?
e-ID is arguably safer than traditional method as information is derived from several independent sources that already provide information to authorised Credit Reference Agencies and it is much safer than sending original documents in the post. This will protect applicants from the risk of Identity theft, one of the biggest financial dangers faced by many people. Customers can see who has requested an e-ID in the same way that they can obtain a copy of the other information registered at a Credit Reference Agency.
How much time will it save me?
Assuming you are able to gather the relevant documentation and send it off straight away, it is unlikely to take anything less than a couple of days to verify your identity manually, although it could be more if you cannot compile and send the necessary information immediately. Then there is the hassle of digging out documents, finding an envelope and a stamp that suits the size of envelope you have chosen and an e-ID verification takes moments and is hassle free. It is also not unknown for documents to be lost in the post, or even mislaid by a lender.
