What a difference 12 months makes.
This time last year mortgage brokers were focussed on driving the last of their pipeline through to completion in time to meet September’s stamp duty deadline. House prices were shooting up month on month and bidding wars were rife.
Now, brokers are focussed on driving cases through before the next base rate rise. House prices are cooling and the thorny issue of downvaluation has returned.
Property prices have been rapidly rising for two years culminating in a 13% annual price rise in May, according to Land Registry data. But this month Halifax reported its first house price fall since June 2021.
Tough conversations must be had with borrowers to nudge their price expectations in the right direction.
It’s not easy, however, convincing an emotional buyer or remortgager that their property isn’t worth as much as they thought.
But technology can help.
Housing market shifts a gear
Halifax reported a tiny drop of 0.1% month-on-month, but warnings are circulating that the expected slowdown is on its way.
When house prices shift gears it’s always a tough time for brokers.
With a recession on the cards, inflation rising and more base rate hikes expected, lenders are likely to take a more cautious view on house prices in case they need to repossess further down the line.
Borrower expectations of property values, however, can remain out of step with surveyor and lender opinion for some time.
Having pre-application technology at their fingertips, such as a broker AVM tool, would enable brokers to have meaningful conversations with borrowers about the value of their home or the property they want to buy.
The importance of the down valuation challenge
Given the current market conditions, down valuations are more likely.
Homeowners have been reading headlines of rocketing house prices, but not every part of the country has experienced the same uplift. Moreover, not every property type has benefitted.
As the mood of the market begins to shift, it can be difficult for brokers and borrowers to know what is realistic and what isn’t.
Data-powered technology takes away that guess work. It also allows brokers to objectively challenge a valuation without upsetting their client. Property values are an emotional affair after all.
Consistent conversations between brokers and their clients
Some intermediary firms already have their own manual processes in place to check and challenge clients’ valuation expectations. The success of that process depends on the individual broker.
How much experience, confidence and time they have to challenge valuations will influence the outcome.
A broker AVM tool would enable intermediaries to challenge valuations in a consistent way. It paves the way for sensible discussions and an adjustment in expectations if needed.
Disappearing mortgage deals
Brokers and borrowers never welcome disruption along the mortgage journey. But right now, that disruption could cost the borrower hundreds of pounds in extra interest a year.
Inflation, now at 9.4%, shows no signs of slowing down. In fact, the Bank of England expects it to climb to 13% in the next few months. The central bank rate has already reached 1.75% and analysts predict that it will rise further.
Intermediaries are racing to book deals before lenders withdraw them for repricing, an event that has become frequent.
If, weeks into the application, the lender’s own valuation comes in lower than a borrower’s optimistic estimation the mortgage deal may be at risk.
Borrowers may have to reapply for a new deal if the loan to value has changed. Or the may have to find a new, sensibly valued, property to buy. Either way, those sub 4% mortgage deals won’t be around for long.
Slick service opportunity for brokers
Technology that gives brokers an insight into the likely valuation outcome before an application is made also means they can offer an accurate, efficient and slicker service.
A borrower who has underestimated the value of their home, and goes unchallenged by their broker, could miss out on a cheaper rate reserved for those with a 60% LTV, for example. Being able to identify this, pre-application is sure to make a lasting impression on clients.
And what of those who have their hearts set on their dream three-bedroomed cottage in the countryside and will bid anything to get it?
Arming them with a sensible valuation range and the most likely value the lender will agree, albeit no cast iron guarantee, is surely worth its weight in gold.
Brokers can act as voice of reason for borrowers
Down valuations may be more frequent when economic doom and gloom descends but they can happen in any market, even a stable one.
If brokers and borrowers don’t have access to tools that can guide them to a sensible price it’s just emotional guesswork.
By being equipped with the right technology that offers pre-application confidence, customers avoid disappointment, brokers have time to help new clients and lenders are not painted as the villain for disregarding an unrealistic value.
It’s a win-win for everyone.