Jeff Knight (pictured) is director of marketing at Foundation Home Loans
The UK housing market is incredibly fluid and could never be described as a homogenous mass.
By that, I mean it’s very difficult to review a ‘UK housing market’ because, lets be honest, there are great swathes of differences, not just between individual countries, or counties, or towns, but often within very small areas. The market for one street can be very different to the next.
This can make the whole notion of property value very difficult to get right. For instance, I read research from the Principality Building Society suggesting that the average house price in Wales has reached a record high of just over £191,000, with quarterly and annual house price growth up by over 2%.
In that regard, different regions across the country appear to be bucking the London/South East trend – I’ve heard a large amount of anecdotal evidence from brokers active in these regions that prices over the last 12-18 months have taken a serious hit, due to a number of factors, not least the impact that increased stamp duty charges are having on the sale and purchase of £1m-plus houses.
Indeed Rory Joseph of JLM Mortgage Services, recently talked about some of their clients who three years ago saw their neighbours selling their homes for £1.5m, and now when they are being put on the market, estate agents are advising a sale price of nearer to £1m.
You can therefore see how things can change in a relatively short space of time, plus when you add in the potential impact of Brexit negotiations during that period and look at what might happen next, who is to say how house prices might move?
Regionally, however, we appear to be seeing greater growth in prices in areas outside the South East of the country, and some might say this has been long overdue.
The gap between these regions has often been incredibly large, but perhaps not so now, and it’s perhaps therefore no surprise to see landlords much more inclined now to purchase in areas beyond the South East because of the perception they can get more for their money and can also secure a greater rental yield.
This decision obviously requires a large degree of due diligence on the part of the landlord, especially if they are unfamiliar with a locale.
The fast-changing nature of house prices however also needs to be reviewed and analysed by all housing market stakeholders in terms of the valuation of properties.
We’ve certainly seen a growing number of down-valuations coming back from our own valuers when it comes to properties which we are being asked to lend against, and clearly if that initial valuation, either by landlord, adviser, or agent, is off the mark, then this can cause some significant issues when it comes to making the lending decision in a positive way.
We understand that ‘down valuations’ are incredibly frustrating for all, but there is a reason why we use independent valuers in this market, and we are not simply working off estate agent estimates. In that sense, we would ask advisers and their clients to be aware of what might happen during the valuation process and pre-empt that by being realistic about what the property’s real value might be.
Some might believe that valuers are ‘making it up as they go along’ or ‘the house down the street went for more than this just a few months ago’, but let’s not forget that the valuation we require has to be evidenced-based.
This is not just a case of sticking a finger in the air because there is a large degree of liability for that valuer should it be judged, for instance, that they have over-valued a property.
As RICS have been at pains to point out: ‘The market value is based on comparable market evidence, which is usually confirmation of a minimum of three sales transaction of similar types of properties in the local area, and also the professional’s knowledge of the local market including supply and demand dynamics.’
Now, I fully understand that agents may well argue that their knowledge of the local market is second to none, however it’s their job to get the best price for their client, whereas the valuer works on behalf of the lender or provider, and therefore that agent ‘asking price’ might not be accepted as proof positive of the value by anyone else.
Plus, as mentioned above, prices can change quite sharply in different areas and, what might have seemed realistic a few weeks or a month ago, might no longer be the case.
The point is that if there is a healthy degree of realism at the outset, then there’s less likelihood of the valuation coming back as a shock.
As a lender active in this space we always want to make the deal work, but it has to work for everyone, and that means following the result of our independent valuation.
We would like to keep those down valuations to a minimum, but it will require an understanding from all concerned of how valuations work, how their view of the market might be different to others, and an acceptance that we have to accept the valuers’ view.