The automatic valuation models (AVM) and desktop valuations used by mainstream buy-to-let lenders during the pandemic are not possible for specialist lenders, Landbay has claimed.
A desktop valuation is when a RICS chartered surveyor investigates a property, looks at the details and uses photographs and other data to compare similar types of property in the area, all without visiting it.
Meanwhile, an AVM, which requires little or no human input, is an automated version of a desktop valuation that examines house sale data and provides a valuation based on this.
During the coronavirus-induced lockdown on the housing market, physical valuations for the most part came to a halt, so desktop valuations and AVMs became more popular for mainstream buy-to-let lenders.
However, specialist buy-to-let mortgage lender Landbay, which was a peer-to-peer lender until it exited the retail investment market last December, said this wasn’t possible for alternative lenders due to their funding model.
Landbay explained that alternative lenders’ funding comes from wholesale channels such as large banks and it is usually a condition of their funding agreement that they must carry out a physical valuation.
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“Lenders with their financial resources intending to recoup the capital utilised to create their mortgage book via a securitisation, or via ‘whole loan mortgage book’ sales, would not generally allow desktop valuations or AVMs,” Landbay said in a blog on its website.
“Currently, if you don’t have physical valuations on every single property, regardless of LTV and regardless of whether it is for a remortgage or a purchase, those mortgages will not be desirable, so they are not currently acceptable assets for securitisation or onward sale.”
Landbay said both AVMs and desktop valuations work well for standard property of similar types in the same area.
However, the lender said that AVMs are not as effective in cases where there is less comparable types of property. For example, with houses of multiple occupation and other properties converted to accommodate tenants, it’s difficult to find another in the same area to compare it to.
The lender added that AVMs and desktop valuations are not acceptable to lenders where property is in high-risk areas such as flood plains, and won’t work where borrowers require higher loan-to-values (LTVs) because lenders restrict LTVs as there is no physical visit to the property.
Landbay said that Covid-19 has brought a welcome debate to the value of AVMs and desktop valuations.
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“Encouraged by lenders seeking to keep the mortgage process ongoing during this crisis, firms involved in desktop valuations and AVMs are continuing to develop their propositions in the belief that by improving sophistication and modelling more lenders will be open to their greater use,” Landbay said in the blog.