03 June 2006

AN opinion on valuations after HIP (Home Information Pack) day.

There has not yet been a definitive comment from lenders as to whether they will choose to use the information in the Home Condition Report (HCR) to count towards a valuation together with an automated valuation.

The fact is the HCR comments in some detail on the ‘fabric’ of the property and contains a rebuild cost, it is merely missing the valuers opinion.

Some possible reasons why a Lender may decide not to use this include:

(a) The interpretation of the report is labour intensive unless this is done by an intelligent scoring system which may be uneconomical for the smaller lenders.

(b) If the lender securitises (sells on) it’s loan book periodically, the value of this book may be lower without a full valuation.

(c) High loan to value loans represent a higher risk to the lender and a physical valuation is regarded as more secure (although some evidence suggests that the AVM (automated or desk top valuation) is just as accurate)

(d) Some properties (in rural areas for example) have too few comparables locally to be valued from a desk top.

(e) Lenders often employ their own valuers and make a profit from the valuation itself.

So what could lenders do to remove the need for a full valuation in addition to the HCR?

(a) Take a pragmatic view on low loan to values

(b) Make more use of ‘drive bys’ or a stand alone valuation by a qualified valuer to add a valuation to the HCR information

(c) Use an automated valuation model supported by audit via sample physical valuations

In other countries where the equivalent of the HIP has been introduced a valuation has become an inclusive part of the HIP. A valuation module has already been proposed for Home Inspectors but this would depend on lenders recognising this as an appropriate qualification.

So where does that leave prospective providers of HIPS and th rest of us?

For the time being we have to assume that a physical valuation will be required on a reasonably high proportion of properties in addition to the HCR. As lenders unveil their post HIP model naturally there will be competitive pressure on them to either cheapen or remove valuations – essentially lender A does not require valuation, lender B does – more business flows to lender A and lender B will have to follow the pack.
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