Law firm issues warning over Abbey’s 5x income mortgage

Reynolds Porter Chamberlain LLP, the insurance law firm has warned that the decision by Abbey and other banks to relax their mortgage lending criteria should put property valuers and their professional indemnity insurers on watch for negligence claims.

RPC says that one of the biggest sources of professional negligence claims against surveyors is for negligent overvaluations of properties. Many of these claims are only launched by the lender after a home has been repossessed and sold at below the value estimated by the surveyor.

Valuers’ of properties are allowed a 10% margin of error in their valuations whilst for some properties, where less comparable evidence of their value exists, a wider 15% margin of error is allowed.

The problem for the valuer is that they will have no idea of how overstretched the borrower is, and therefore will have to exercise caution in all cases.
The number of mortgage repossessions orders has jumped by 21% in the last year to 22,254 in the last quarter.

Alexandra Anderson, partner of RPC, says: “Lending on five times salary increases the risks that borrowers will get out of their depth and creates the environment in which a claim against a valuer will be launched.

“The sums involved in the average negligent overvaluation are going to be influenced by the runaway house price inflation of the last decade. With a big increase in the number of properties valued at over £1m, the frequency of really sizeable claims against valuers and their insurer look set to increase.”

“House price inflation hides many of the problems relating to the overvaluation of homes but the Monetary Policy Committee is expected to raise interest rates again to take the steam out of the housing market.”