True value is in the eye of the beholder - Property valuation advice
There are few more emotive issues than the estimated value of your own property.
Anyone who has been or is intending to remortgage in the foreseeable future will be aware that an independent valuation will need to be completed in most cases. In the current property market, this can be a harrowing and eye opening experience. It has become increasingly evident that property valuers have been taking a very lean view of the UK property market and this has significant implications for seller, purchasers, remortgagers and, most importantly, mortgage brokers and IFAs.
According to London-based data services company Hometrack, which delivers a good indication of a property's value, house prices fell for 18 consecutive months up to December last year, when the average house price in the UK climbed just 0.1 percent.
For most areas, last year provided the poorest house price growth - if any - in more than a decade. There is no doubt that 18 months of average values falling, or at the very least the speed of growth falling dramatically, have diminished homeowner equity levels and dented consumer confidence. Hometrack's national average house price in December was measured at £160,900, down 1.6 per cent from £163,474 in December 2004.
From a seller's perspective, the messages are simple: supply outweighs demand and it is a buyer's market. In the first quarter of last year, the number of properties available soared by more than 30 per cent.
During last year, the length of time it took to sell a house grew by more than 20 per cent to eight weeks. In 2004, it took and average of 6.5 weeks from listing to confirmed sale. Importantly, the sale price as a percentage of asking price was down to 93.5 per cent last year, endorsing the point that buyers exercised significant bargaining leverage over sellers and negotiated large discounts.
In real terms, a seller who lists his property for sale at last year's national average of £160,900 will, on average, achieve an agreed sale price or £150,441 and have to wait on an agonising two months to seal the deal.
Even at this price it is a bridge too far for most first-time buyers looking to get their toe in the property market. But there is some light at the end of the tunnel. First time buyers accounted for 11 per cent of total buyers in the third quarter of last year, according to the National Association of Estate Agents. This was up from 7.7 per cent in August. Brokers should be mindful of the important market sector in their marketing plans, and a further interest rate cut in the first quarter of 2006 could really kick start the property market.
From a remortgage perspective, the implications are significant and a conservative valuation can conspire to make the professional mortgage broker or IFA look a bit silly.
Brokers and lenders witnessed and unprecedented level of down valuations last year - where the property valuation is significantly less than the customer's initial estimate. Most lenders require a valuation to be completed on remortgage applications, particularly where the loan-to-value ration is more than 70 per cent. The major issue facing mortgage brokers is taking a customer's estimate of their perceived property value on face value, as invariably it will be on the high side. This is where the fun begins.
Let us visit the sale process of a typical mortgage broker. You spend a good few hours completing a fact find, issuing an independent disclosure document and building the confidence of your client in your ability as a professionally-qualified, Certificate in Mortgage Advice and Practice-endorsed, FSA-registered adviser.
You tell your client that you have more than 4000 mortgage products to choose from and you will find him one that fits his need exactly. A key cornerstone of the selection is the LTV ratio and this is based on the customer's estimate of his property's value.
This estimate will be based on a few things: knowledge of other properties that have sold recently in his street or neighbourhood, the press and a large dose of gut feel.
About the Author: John Smith writes articles for blackandwhite.co.uk loans and mortgages, offering Bad Credit Loans.