The recent upheaval in the credit market means there is now even more need for valuation providers to manage and minimise risk for lenders.
The problems faced by Northern Rock, and other lending institutions over the last few months have had an enduring affect on the lending market.
Lenders, especially in the non-conforming market have suffered during this credit crunch as a result of taking on too much risk. As the market continues to tighten, there is an increasing need for lenders to ensure the valuation process they are using is robust and responsible.
Accuracy and confidence
Valuation providers need to focus on providing lenders with a more accurate valuation and therefore an increased confidence rating. This will require effective communication between panel managers, valuation providers and lenders.
Lenders can no longer rely simply on the traditional valuation method to price in a slowing property market. When prices are increasing, over-valuations are less crucial because prices should soon catch up. In a slowing market however, they can have serious consequences for both lenders and borrowers.
We are already seeing the effect of the over-valuation of property, especially in inner city new build apartments where some buyers are experiencing as much as a 40 per cent drop in property values due to oversupply and inflated valuations at the time of purchase.
Market intelligence
In previous downturns a lack of market intelligence meant lenders were not advised of areas with the most risk, and those which were the hot and not spots. Now, with the growth of automated valuation models (AVMs) there is far more data available for lenders. AVMs are providing a solution to risk management, by ensuring assets are valued accurately.
At Valunation we are working with Calnea to develop a trend and risk model, which will enable us to produce a comprehensive “risk” map of the UK. Being part of the Spicerhaart Group means we have access to data from both our asset management company and estate agency group.
We can then map this data onto an AVM, allowing greater analysis of house prices in a particular area, pre-empting and identifying hotspot areas. This gives lenders a clearer picture of how a property is likely to perform and a greater risk assessment.
Since September it has become clear just how important this information is for lenders, with recent statistics from Moneyexpert.com showing a 60 per cent increase in the number of declined mortgages over the past six months.
As lenders’ appetite for risk has reduced, it is becoming much harder for buyers to obtain a mortgage, particularly on non-standard properties. This will undoubtedly have a knock-on effect on buyer confidence and may well slow the market further.
Provider duty
It is up to valuation providers to assess the market data on a property and proactively manage the risk for lenders. By informing lenders of where the problems lie from the outset and indicating the future desirability of a property, valuation providers can help improve confidence levels, which, in turn, will bolster the market.
Valuation suppliers need to become more transparent in their operations and more integrated into lenders underwriting teams. This will help to build lenders confidence and give panel managers a better understanding of a lender’s borrowing criteria.
Improving your offering
Now is the ideal time with lower volumes for valuation providers to look at their own businesses, and assess where they can improve their offering to help instil greater confidence in the market. Essentially this means identifying risk and communicating this to the customers, as well as promoting best working practices and service standards.
A tighter market provides an opportunity to introduce positive change to your business, by reducing costs and improving efficiency. This will lead to a greater belief in the lending market and an early recovery.
Valunation was launched at the beginning of September, and will provide nationwide valuation solutions to UK lenders, packagers and brokers. Using the latest technology, Valunation will offer the most accurate and quickest automated valuation models (AVMs), by uniquely using more than one AVM provider to enhance confidence ratings.
