Two valuations throw up problems not solutions
In the lead story in last week’s Mortgage Strategy, the head of fraud at accountancy firm BDO argued that 80 per cent of mortgage fraud could be eradicated by including a second valuation.
It came on the back of a recent report by Experian which discovered that fraudulent mortgage applications submitted to lenders increased 22 per cent between April and June.
In principle it sounds good – but it also throws up a lot of unanswered questions as well.
For example, what happens when the two valuations differ by a serious amount?
Are they then going to ask for a third valuation or do they take a medium between the two or do they just take the lower valuation which would restrict lending still further? And when they are unsure, do they carry out an audit valuation?
I also note this is a comment made by an accountant, not someone from the mortgage industry. Should we now start telling him how he should do his job and how he can get rid of fraud in the companies he represents?
Maybe all accountants’ work can be checked by another accountant to check that their figures are right before the information is released. Will their clients want to pay for the same work twice? I think not.
Clients do not want to pay twice for a service which should be independent first time round.
John Charcol senior technical manager Ray Boulger made a good point that, 10 or 15 years ago, the broker could choose the valuer, which opened the door for an increased risk of fraud.
As he argued: “Because of the controls lenders have now put in, the scope for fraud is actually quite limited unless someone has found a way round the system. If you have collusion with someone working for the lender and someone working for the valuer, then that is different.”
In the past,packagers got to chose the valuers but now the lenders use an independent panel and get to choose the valuers, so reducing the chance of exactly the type of fraud Bevan is taking about.
Name and address supplied
Doubling up on valuations would just be a hindrance
Two valuations is another totally useless idea designed to protect surveyors and their professional indemnity.
The housing market has worked perfectly fine for years as it is without having to need two surveys.
Many lenders already have this in place for purchases over £2m. Either the lender wants to lend or they don’t.
It is down to them to do the appropriate checks when assessing a case for a lending decision. In reality, it would be a big hinderece to sellers but a boon for buyers.
Avenue & Co Private Finance
Doubling up on valuations would just be a hindrance
There will always be the exception where a second valuation is needed. However, for many properties using the last sold price registered at the Land Registry, together with indexation, could provide a sensecheck on the current valuation.
If the last sold valuation was within, say, one to two years or older than 10 to 15 years, then by all means have a second valuation. If the sensecheck or desktop valuation using the Land Registry’s last sold figure is at odds with the current valuation, then this will flag up a potential problem.
Valuation fraud may misrepresent the type, size of property, etc, but then I would expect this to create a valuation which is at odds with that of an indexation of the last sold price. I am not saying replace an actial valuation with a desktop valuation, just that it could be used to check current valuation rather than having two valuations for all properties.
Name and address supplied
A professional who will be a major asset to any firm
I was sad to read last week that Phil Whitehouse had left his post as head of The Mortgage Alliance.
Knowing Phil personally over the last 10 years, I wish him the best of British. I always found him to be professional and approachable. A very decent bloke, who will be a major asset to whoever he moves to.
Rate cuts will not help the market while SVRs rise
In last week’s Mortgage Strategy, PMS product and communications manager Rob McCoy argued that the recent round of rate cuts had ushered in a new era of market activity fuelled by the Government’s Funding for Lending scheme.
He said: “As the rate war heats up, I am hoping it will kick-start an upsurge in movement across the industry so that we can all reap the rewards of the cheap rates out there.”
These rate cuts will do nothing for the market. They carry huge fees and, of course, their pricing has factored in a fall in base rate by 0.25 per cent the month after next.
Other lenders are increasing SVR at the same time.
Pricing in buy-to-let markets is criminal, even at low LTVs. How can I borrow money from high-street banks to buy a car at lower rates than to invest in property?
Give tax breaks to encourage the rich to invest in the UK
Last week, deputy prime minister Nick Clegg hit the headlines with his argument that the rich should pay more in tax.
He said: ““In addition to our standing policy on things like the mansion tax, is there a time-limited contribution you can ask in some way or another from people of considerable wealth so they feel they are making a contribution to the national effort? What we have embarked on is in some senses a longer economic war rather than a short economic battle.”
I know he needs to align with his leftie roots but surely the solution is giving tax breaks to high-net-worths to encourage them to invest in the UK economy.
We should also offer relaxed employment laws for those prepared to take on youngsters instead of making it cheaper and easier to outsource overseas.
If businesses are producing, then revenues will rise.
The big question on the new regulatory structure is why?
I was dumbfounded by the article on Mortgage Strategy Online last week which reported that compliance officers are anticipating the cost of regulation to rise by up to 20 per cent under the Prudential Regulation Authority and the Financial Conduct Authority.
The Scotsman reports research carried out by consulting firm Protiviti, which found half of the senior compliance professionals polled expect their company’s compliance costs to increase under the new regulatory structure.
The survey found just 17 per cent believe their firm is completely prepared for the different reporting demands and processes of the twin peaks structure. A further 13 per cent say they are only beginning to prepare for the new regulatory structure now.
I have a simple question in response to all of the above – why?
The new regulator should be aiming to make the organisation leaner and more efficient – and more effective.
In addition, it needs to get some people in that know something about the industry this time, not a load of economists.
Positive and negative factors of buy-to-let
I was interested to read Brian Hall’s article in last week’s Mortgage Strategy, which was headlined, Bursting buy-to-let’s fragile bubble.
Hall argued that fuelled in part by poor and incomplete advice to naive investors, buy-to-let is seen by many as a way to make a fast buck but his profitability index showed this not to be the case.
He made some interesting points but with a housing shortage and a lack of mortgages for first-time buyers, simple supply and demand means buy-to-let is a good investment if the investor buys the right property in the right location at the right price.
After all, a bad property investment can be made just as in any other investment type. The figures have to add up.
The benefit of buy-to-let is the investor has a lot more control over where their money goes and they are not left to the decisions of fund managers, who have not covered themselves in glory over recent years.
Property is easier for people to understand and many people have made good money out of property in the past and will continue to do so long into the future.
I suppose it is possible to build a model that shows pretty much any investment to be flawed. Personally, I’d prefer to look to the positives.
In response Brian Hall writes:
Peter, I think your point about the investor having control is a really important one, given the distrust the public obviously has towards financial institutions these days. And, of course, the investor is involved in the whole purchase, renovation and lettings process and can physically touch the asset they have acquired.
I also take your point about buying the right property in the right location at the right price. If buy-to-let is approached in a professional manner, no doubt an investor can generate a profit.
But investors must take every factor into account, including falling house prices, voids, arrears, management costs, insurances, etc, which together can quickly turn profitability negative.
Rents cannot keep rising indefinitely, any more than property prices could do previously, and one day interest rates will rise again.
My primary concern is with naive investors. The International Monetary Fund considers that property prices in the UK are overvalued by 10-15 per cent and in 2011 Standard & Poor’s predicted that an approximate 10 per cent fall in property prices would push 30 per cent of buy-to-let investors into negative equity.
The worst-case scenario would be a highly geared investor with multiple properties in negative equity, with negative cashflow.