UK-based Landbay, a buy-to-let mortgage lender that provides various borrowing opportunities, says that automatic valuation models (AVM) and desktop valuations used by major buy-to-let lenders during COVID-19 are not possible for more specialized lenders.
A desktop valuation usually refers to valuations that are undertaken with limited or indirectly sourced information. These types of valuations usually do not perform a complete physical or in-person inspection of a property. In qualifying circumstances, experts claim they’re able to offer a reasonable opinion or assessment of value from their desks (without actually visiting the property being assessed).
AVMs require minimal or no human input. They’re an automated version of a desktop valuation that examines property or housing sale data and offers an evaluation after reviewing this information.
Physical or on-site property valuations have, for the most part, been put on hold due to the Coronavirus crisis which has led to the enforcement of lockdowns or other types of restrictions to prevent the further spread of the virus. Desktop valuations and AVMs are increasingly being used now by major or mainstream buy-to-let lenders.
Landbay, a specialist buy-to-let mortgage lender that was once a peer to peer lender until it left the retail investment market in December 2019, claims that this method isn’t really an option for alternative lenders because of the type of funding model they use.
Landbay’s management noted that alternative lenders’ funding is usually drawn from wholesale channels like large banking institutions. These larger and more traditional banks typically want to perform physical valuations and they specifically mention this in the funding agreement, Landbay explained.
The company noted that lenders with their financial resources “intending to recoup the capital utilized to create their mortgage book via a securitization, or via ‘whole loan mortgage book’ sales, would not generally allow desktop valuations or AVMs.”
Landbay added:
“Currently, if you don’t have physical valuations on every single property, regardless of LTV and regardless of whether it is for a remortgage or a purchase, those mortgages will not be desirable, so they are not currently acceptable assets for securitization or onward sale.”
Landbay noted that AVMs and desktop valuations might work for standard properties that are similar and based in the same location. But Landbay also points out that AVMs might not work when the properties are not similar and can’t really be compared to each other.
