When you deal with a lender they will often ask for various income documents to prove your ability to repay or service the loan you are planning to undertake, assuming you are creditworthy and get underwritten you then have to look at the asset being purchased, in our firm we primarily deal with mortgages on residential properties, and that would be the asset under consideration.
The lender will require a ‘Valuation’ for that property so that they can determine the value of the asset they are lending against, normally they will only let you borrow up to a certain LTV (loan to value). In Ireland property valuations are commonly done by estate agents, there are two types, the kind you get when you want to sell a house – which is more akin to an opinion, and then the kind you get when you are buying a property which is different in that the valuer is going on official record and putting both their insurance and good name on the dotted line in determining the value they place on the property.
Currently brokers are involved in the valuation process, we generally collect the valuation fee and order the valuation, we then receive the report from the valuer and then send it on to the bank. I would feel that this is wrong, mortgage brokers should actually not be part of the process at all.
The issue we have is that a broker arranges finance on an asset and a valuer determines whether the asset is worth whatever the asking price is, it is in the bank, not the brokers interest, to get a 100% accurate figure for this, having said that, in the current Irish property market accurate valuations are difficult to obtain. However, if you let the broker become part of the valuation process there is a risk that unscrupulous valuers could be swayed by a broker or client to give a false valuation, this would hurt the bank and mean that they may underwrite a loan that is not based on a correct asset price.
We are hereby calling on banks to do the responsible thing and remove brokers and all customer facing staff from the valuation process, we don’t want to be part of it, we have offered our services in the past but this practice needs to stop and stop now.
The only bank in Ireland who is operating on this basis is Haven Mortgages, a new and thus progressive lender. They deal exclusively with brokers and for that reason I am pleased to see right thinking and progressive thought coming from the broker and not the direct channel, it tells me that brokers will still have a place in the market because we are trying to do things right and not to merely continue with what is in essence bad practice.
The Regulator is totally aware of this practice in relation to mortgage processing and we intend to write to them to ask that it is discontinued because of the potential for manipulation, the best practice would be to remove all doubt or possibility for anything that could be to the detriment of all parties involved.
For a refinance case the bank should take any previous valuation and apply a current market value to it and then have a valuer go at the banks direction to see the property, in this manner they could also ensure that they have a reliable and forthright panel working for them.
Another issue is that valuers shouldn’t operate at the behest of a broker anyway, their relationship and responsibility ultimately lies with the bank so it is pointless in them having a relationship with the broker, it is the bank who the valuer servese and therefore it should be the bank who carries out the valuation. The present situation is an example of bad practice going un-noticed and unchanged.