Originally the HIP was introduced to improve the speed and efficiency of the home-buying process. After the government’s decision to remove the HCR, many believe HIPs without HCRs will simply result in extra costs and red tape. However, the use of AVM’s will substantially increase a considerable proportion of the anticipated benefits originally associated with HIPs to consumers, lenders and intermediaries. Products and services can now be geared to offer certainty, speed and reduced costs in the home buying process.
The use of the AVM system, which provides instant valuations on residential properties, has enabled lenders to enhance their business operation. Benefits include being able to provide a more efficient valuation service to customers by reducing the average time to offer and in doing so improving the efficiency and cost-savings as AVMs enable lenders to cut the valuation time by 75 per cent.
Enhancing service
Traditionally, potential homeowners have faced long delays on receiving a mortgage offer by having to wait for a survey and valuation before the offer could be made. By replacing the time-consuming and comparatively expensive drive-bys and physical valuations with AVMs, lenders are able to offer their customers a faster service, which now includes instant offer mortgages at the point of sale, e.g. via a call centre or website.
Although AVMs have been used by lenders to deliver enhanced customer service and immediate cost savings for many years, the revolution in the home buying process is now really starting to get underway, with at least another six medium to large lenders expected to offer an instant mortgage by early 2007. Lenders that have announced they will soon be offering instant mortgages include GMAC-RFC and edeus, whose AVMs are both provided by Hometrack.
Accuracy
However, instant mortgage offers depend on the accuracy of the AVMs as lenders manage their risk carefully and are reliant on securitising their mortgage books. Our AVM is currently the only indemnified AVM on the market, protecting lenders against valuation errors of over 10 per cent at up to 90 per cent of the loan-to-value (LTV) ratio. Although we have a proven system and have worked with ratings agencies to win approval for AVMs among investors, the HCRs were generally perceived to offer a safeguard for lenders relying on AVMs.
Even so, the HIP in its new streamline version will still contain valuable information upfront which is complimentary to AVMs. However, it is important to note that the HIP information is not a pre-requisite to enabling lenders to offer an instant mortgage with confidence for most LTV mortgages. The requirement that an Energy Performance Certificate (EPC) is included in the HIP allows AVM providers to potentially collect new data sets from a technically trained workforce. It has yet to be proven what additional use the AVMs can make of this EPC data.
Greater awareness
We concede that the legislative process surrounding the introduction of HIPs has lead to a greater awareness of AVM technology in recent times and have helped raise the profile of AVMs – a market believed to be set to treble in the next two years. As mortgage lending remains strong and lenders increase their uptake of online valuation services to streamline and improve the mortgage application process, we predict that AVMs will account for over 60 per cent of mortgage valuations in the next two years up from around 20 per cent currently and only 10 per cent last year.
Looking to the future, the introduction of a HIP could result in the ultimate selling package for homeowners, whereby all information on the property as well as a mortgage offer is available from the outset. Although a number of lenders have stated that following the introduction of HIPs buyers will still be required to purchase a separate survey, there are those within the industry who believe that this will change.
Irrespective of the final decision on HIPs and the inclusion of HCRs, AVMs are already well established. Lenders have already recognised their significance specifically within the instant mortgages arena, and more generally as a benefit to the home-buying process as a whole. As a result the use of AVMs is expected to soar, with lenders, and ultimately consumers, set to reap the rewards from this advance in technology.
