Global digitalisation, as a result of the pandemic, meant many industries and businesses needed to adjust to online tools and ways of working. One such industry was the housing market, which saw sweeping stay-at-home restrictions end in-person viewings for the better part of a year. In adjusting to the new climate, a major shakeup of the housing value chain occurred.
The adoption of digital valuations is part of the progress we have witnessed over this period – a logical extension of their lighter touch cousin, the automated valuation model (AVM). But how can digital valuations help surveyors and lenders?
The revival of AVMs
The AVM received a new lease of life during the pandemic as physical inspections became impossible. Lenders who were already fighting thinning margins with record low interest rates embraced AVMs for operational efficiency. Having become embedded in re-mortgage and audit functions, AVMs, and now digital valuations, comprise the underwriting furniture of residential purchase lending.
In a market experiencing unprecedented house price growth, the attraction for lenders is clear. AVMs and digital valuations lend speed to the process and enable quicker processing of purchase applications. Crucially, this approach extends the promise of improved customer experience. By ensuring consistency and cutting property valuation times, valuers enjoy greater capacity to focus on those more complex cases. But, given our experience of property risk management, and at least two house price corrections in living memory, it would be naive to imagine AVMs present a silver bullet.
Digital valuations ring in a new era for the market
So why have digital valuations flourished if AVMs exist? Well, AVMs are no silver bullet. AVMs do not consider the property condition, as a physical inspection of the property does not occur and therefore the valuation assumes an average condition, which may not reflect reality. As such, purchasers relying on AVM-backed mortgage applications will need to source separate advice to establish the true condition of the property. And nor do AVMs come with an insurance backed guarantee or any oversight from a qualified professional valuer.
PI-backed and conducted by a Royal Institute of Chartered Surveyors-qualified surveyor, our own digital valuation has come of age for many lenders. It combines technological efficiency with human wisdom and is being used today by some lenders for lending at up to 90% LTV.
Nevertheless, we live in a digital age and big data offers us big opportunities. As technology has improved and data has become more robust, timely and accurate, digital valuations have enhanced the AVM data experience.
Technology and human relationships will drive innovation fowards
There is little doubt that digital valuations will continue to transform the mortgage market, driven by a range of market factors. A greater reliance on data, especially regarding energy performance, will supplement the product and inform our notions of mortgage lending opportunities and risks. We may well see micro markets of risk addressed with a blend of methodologies – depending on the requirements of that specific sector. In fact, we may start to re-evaluate our notions of risk completely.
The greater use of technology and analytics to support lenders’ mortgage volumes while managing risk is not limited to loan origination. There are a range of emerging analytical services that help lenders to better assess collateral at origination and across existing portfolios.
However, this is not a tale of machines replacing people, but a story of how machines and data are enhancing the performance and decision-making of people. The next chapter is likely to be about enabling even greater efficiency in mortgage lending, which we must be ready to embrace.
Paula Matthews is strategic relationship director at Legal & General Surveying Services
