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SPECIAL FEATURE: Automating riskier valuations

Mortgage Introducer

January 18, 2016

John Bagshaw, corporate services director at Connells Survey & Valuation, considers whether the time is right to return to the automated valuation model but add an element of risk assessment.

Prior to the 2008 financial crisis when annual mortgage lending was more than £350bn, AVMs were being widely used by many lenders to assess property values.

Particularly in remortgage situations this negated the need to refer such cases to chartered surveyors for physical inspection and reporting.

However, few if any AVMs were being used to authorise mortgage advances on property purchase cases with most of these cases being referred for external or internal inspection by surveyors.

Post-2008, the lending world changed dramatically and AVMs fell out of favour as a method for approving mortgage advances.

Whilst there is little data available regarding the number of properties which had been subject to AVM assessment and which subsequently fell into arrears and/or possession, the appetite of most lenders for the continued use of AVMs cooled significantly.

Many of these systems sat dormant within lenders as a method of mortgage origination until midway through 2013.

Interest was once again raised as the mortgage lending market started to recover.

After five years in the doldrums it was realised that less than 50% of the pre-2008 residential surveying workforce remained in place, with over half lost to redundancy and retirement between 2008 and 2011.

What followed during 2013 and as mortgage lending increased were much-publicised service delays in the residential valuation market, prompting a number of the larger lenders to once again dust off their legacy AVM systems.

There is plenty of evidence that AVMs can provide a good estimate of the value of certain property types.

An AVM will do a pretty good job assessing the value of a terraced house in a densely populated urban area where a number of properties have recently been sold, but would be less appropriate when tasked with valuing an individual detached country house in a village comprising lots of individual properties and plot sizes.

The residential chartered surveyor demographic, with an average age in the mid to high 50s, and only 250 new AssocRICS recruits in the last 18 months, does not encourage optimism for sustained service delivery.

Especially when viewed against the latest Council of Mortgage Lenders estimates for lending over the next few years, peaking at around £284bn in 2019, roughly a 35% uplift over the next four years.

There is no short-term solution to the surveying shortage, with best estimates for staff levels to catch up within around four to five years.

What is now required is more creative use of software and for surveyors and panel managers to work alongside lenders to deliver the next generation AVM into the mortgage valuation market place, including the ability for the next generation AVM to penetrate the originally untapped purchase market.

A number of industry providers, Landmark, Rightmove amongst them, have already started to develop AVRMs (automated valuation risk models) or similar next-generation technology models which pull together property risk data into configurable rules-based risk engines.

The models combine traditional AVM data sets along with other available environmental and socio-economic data such as subsidence and ground stability, flooding, fracking, contaminated land and HS2 impact.

The AVRM will also be capable of linking with existing fraud and risk software systems such as Q Guard and Rightcheck.

Connells believes there is an opportunity to reshape the conventional approach to residential valuations by integrating these new AVRMs either at lender or panel manager level to enable a cascade approach to residential mortgage valuation selection.

Low-risk properties and customer applicants would benefit from an automated assessment through the AVRM model.

Applications falling just outside this automated approach would then benefit from a managed desk top assessment where the surveyor is provided with the property risk outcomes from the AVRM to enable a further number of cases to be valued without physical inspection.

Beyond this point valuations would then revert to the conventional drive-by or full physical inspection.

The underlying objective is to enable more creative use of the restricted surveying workforce ensuring there is a greater uptake of properties passing through the AVRM without the need for a physical inspection.

This thereby frees up surveyors to carry out physical external and internal inspections on the higher risk, individual and unusual properties or properties associated with higher risk applicants.

A couple of larger lenders have already started to work with the AVRM providers to deliver automated valuations on new purchase cases, albeit at relatively low LTV and risk and volumes.

However this is a positive start and it is hoped that other lenders will agree to revisit the AVM route.


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