At the peak of the 2007 boom, the buy-to-let market was considered as a cash cow by many.
There was limited risk to investors with as little as only 10% of the value of the property needed as a deposit. Many properties were bought off-plan as supply tightened and prices rocketed. High capital values kept the rental market buoyant as tenants were priced out of purchasing property.
Fast forward three years and the story is different. Perceived risks on values are far higher, especially as prices have fallen. Lenders are insisting on a minimum 20% deposit and are far more focussed on accurate valuations.
There are many factors that valuers must consider when valuing buy-to-let property. These include mortgage fraud, the percentage of investor properties and the effect on value, changing lender criteria, repossession levels and rental demand.
To protect their mortgage book lenders are taking a more thorough approach to the value of the underlying security. Valuers should be considering the property from an investor perspective and looking at issues such as voids, service charges, letting agent costs, repairing covenants and yields.
This will increase the cost to lenders and may slow down the lending process, but it should give best advice to lenders and applicants, and protect the valuer.
It’s time for buy-to-let properties to be valued for what they are – an investment. A back to basics approach is required with lenders and valuers working hand in hand with an informed view of risk.