Welcome to Appraisers UK

Surveys, Valuations and professional advice in Residential, Agricultural and Commercial Property sourced from local Chartered Surveyors throughout the UK.

To assure our clients of our commitment to quality we undertake audits and reviews of the Chartered Surveyors appointed to our specialist panels.

To ensure our clients receive good value our quality distribution and adminstration costs are controlled so the Chartered Surveyors receive fair fees for good quality advice.

In association with the Allied Surveyors group and other independent Chartered Surveyors.

 

News

Chartered Surveyor Valuation Panels – opportunities for valuation business!  

We are Valuation Risk Managers for a number of mortgage lenders. Valuation requirements range from specialist commercial and development propositions for niche banks to a study flat for a building society. Residential investment property remains a particularly active sector. Our panels include multinational real estate consultants right down to sole practitioner Chartered Surveyors.

Sensible fee scales are set by our clients and we don’t take a ‘skim’ from the valuation fee. Residential valuation fees start with a minimum fee of £200 including VAT. In return, the quality of advice and service, which is constantly monitored, must be first class. A strict due diligence process precedes appointment to our panels but enquiries from small practices are welcome. Please e-mail Simon.Jago@AppraisersUK.com

----------------------------------------------------------------------------------------------------------------------------------------------------

Robert Bryant-Pearson FRICS, Chairman of AppraisersUK, discusses trends in the Private Rented Sector, the valuation of Houses in Multiple Occupation (HMOs) and Loan to Value ratios (LTV) for mortgage advances.

Property prices continue to escalate in most regions as they have done over the last three or four years. The Mortgage Market Review stifled some owner occupier demand but there can be no doubt that increased buy to let investment activity has fuelled price rises just because rental income is a whole lot better than dividends from equities or interest in deposit accounts. And there’s the prospect of continuing capital growth. Owner occupation is now a distant dream for an entire generation, to the disdain of a government which advocates home ownership. Little wonder HMG has attempted to frustrate the onslaught of buy to let investors by being seen to rally to the cause of first-time buyers. 

Landlords are railing against the new strictures i.e. the extra 3% stamp duty on new purchases, the disallowance of mortgage interest against rental income for personal tax, the extra CGT levy and, latterly, slightly enhanced stress testing for new BTL mortgages. However, the likelihood is that these measures will do nothing to help first-time buyers.  But rents will go up and house prices will still increase. The casualties will be the private investors with one or two BTLs and they may become disillusioned with the sector (probably what HMG wishes to achieve). However, savvy investors with portfolios will judiciously split their investment properties between limited companies and being privately owned so that planned disposals over the next few years would retain personal CGT relief.
The government should not lose too much sleep about the more corporate BTL investors being ultimately relatively unperturbed. The gap between the pitifully poor supply of new dwellings compared with ever-growing demand for housing will only (and only partially) be stemmed by the private rented sector (PRS) and especially the profusion of HMOs being created. The housing crisis will only worsen if HMG seeks to kerb this PRS provision of HMOs.

Not that HMOs are the silver bullet.

Too many HMOs in a locality can makes life a misery for the family owner occupiers nearby. Especially those who have not cashed in on selling their homes before the Local Authority has introduced an Article 4 direction making it difficult to get a new planning consent for change of use from a private dwelling to an HMO. Such owners are stuck with a house (in planning terms with C3  private dwelling use) probably worth 30% less than the HMO next door but they are lucky to find a parking space within a quarter of mile and the six single people next door may not be the good neighbours they’d had previously.

As more lenders buckle up to enter the BTL arena, the necessity for skilled underwriting becomes particularly important when considering HMOs.  Lenders who go beyond 75% LTV are certainly prepared to live dangerously. 

Once Article 4 directions have been introduced, scarcity value is conferred on existing HMOs: this crystallises HMOs into a defined planning consent category (C4) which is separate from that of private dwellings (C3).  Therefore, Chartered Surveyors valuing such property must consider such HMOs in their own right with their C4 HMO use (or a special ‘sui generis’ consent for larger properties).  Prudent valuers will still keep a weather eye on underlying private dwelling C3 values nearby and they should also consider the cost and ease for an investor to buy and convert property in the area to create an HMO of similar size. Nevertheless, their C4 HMO valuation will be predicated off a multiple of the rental value and yield.  The multiplier applied to the rental value is a reciprocal of the yield. 

These bases of yield and rental value are prone to significant fluctuation in themselves but the variability of the resultant valuation figure is compounded by the calculation methodology being one of multiplication. 

Rents and yields are subject to much more volatility than the capital value of single dwellings.  An HMO valued in a benign market will have a low yield applied to a high rent: when macro-economic conditions turn for the worse, however, rents may decline and yields lengthen and the combination of the two can wipe out the owners’ equity before they have an opportunity to even get the property onto the market for sale. 

Moreover, the degree of accuracy of the original valuation is subject to more uncertainty than the comparable sales data gathered for a private house valuation.  There may be evidence to support rents achieved on new Assured Shorthold Tenancies but are those rents sustainable in the long term? Should the valuer be prepared to fly in the face of recent rental evidence and alienate the lender and the introducer by adopting a significantly lower rental value than a recently agreed passing rent?

The difference between £27,000 per annum and £30,000 per annum does not seem massive and neither does the view of a yield being 8% instead of 9%. On the face of it, perhaps not unreasonable margins of accuracy, especially as yield evidence often varies by considerably more than this and rarely is there reliable detailed analysis available to valuers for yield evidence gleaned from third parties. This remains an imperfect market.

Thus, the “pessimistic” valuer applying a 9% yield to the £27,000 per annum rent will produce a valuation of £300,000 in comparison to the “optimistic” valuer who applies 8% to £30,000 per annum whose valuation comes out at £375,000.

The latter valuer has a defendable position against a claim for negligence even though his valuation is 25% more than the former’s figure.

Add to this a change in economic conditions hitting rents and yields and you get a very high risk cocktail.

As portfolio BTL investors switch to limited company status, the risk increases further for lenders.  By the time enforcement of personal guarantees (PGs) come into play, the cupboard will often be bare.

With ample funding chasing a limited number of propositions, competition inevitably tempts lenders to carry more risk.  Sales incentives do nothing to help lenders ensure that valuation advice is entirely prudent, in fact, the reverse applies. 

Nevertheless, lenders should ensure that valuation advice is audited to check that rents are sustainable and yields are realistic and well supported.  Prudent lenders were already stress testing proposed mortgage advances before the PRA published its Underwriting Standards Consultation Paper in March but the latter should be welcomed. Although it stops short of espousing the need for a maximum LTV, it indicates, in effect, that stress testing against 5.5% interest, with an adjusted rental cover to allow a safety margin for fluctuating rents etc., (often 120% of net rent is adopted) means that advances would often be restricted to somewhat less than the 75% adopted as maximum LTV by many lenders. Such stress testing must be rigorously applied and PGs should be backed by registered charges against other real estate assets. The gung-ho pressures which were rampant before the banking crisis must be kept in check.

15th April 2016

 

Support | Terms of Use | Privacy and Notice Policy | © Appraisers UK Ltd | Site by the Property Jungle