"While lenders are now focusing on implementing contingency issues surrounding the valuations issue, this will likely help mainstream, residential lending at lower LTVs."
Some lenders announced that they are working with mortgage valuation partners to find a resolution as quickly as possible. However others have taken the decision to stop new mortgage lending as they are unable to accept automated or desktop valuations.
Earlier this week, Vida said it is unable to conduct physical valuations due to the pandemic and, as a result, is unable to accept any new mortgage applications.
Pepper Money is also unable to accept automated, desktop or drive by valuations.
Virgin Money will use AVMs and desktops wherever possible for remortgage business, but has suspended new purchase applications.
Craig McKinlay, new business director at Kensington Mortgages, said that while "we have absolutely no plans to pull our full range... we have an industry wide challenge obtaining physical valuations and we are working on a contingency solution which we hope to have in place soon. However, in the meantime any new cases will not proceed past valuation until this is resolved.”
And it's not just residential lending affected by the valuations issue.
Stuart Wilson, CEO of Air Group, commented: “I’ve talked to a lots of Air Group members in recent days, and I know that as they’ve adjusted their own sales processes to meet the demands of social distancing and isolation, many are concerned about what happens next with regards to crucial aspects of the lifetime mortgage application process – namely valuations and conveyancing.
“These processes rely on both the valuer and lawyer meeting a client face-to-face and/or entering their home; given the most recent control measures announced by the Government, that is now all but impossible, especially for conveyancing which (among other things) requires the mortgage deed signature to be witnessed.
“We’re in daily contact with lenders to get updates on how they, and the connected parties to this process, intend to navigate through this issue. There are innovative solutions being discussed and we expect to be able to provide members with some good news on this over the course of the next few days."
As Stuart pointed out, how lenders, surveyors and valuation partners respond to this issue will determine how well the property market is able to continue throughout this crisis. And it's clear that this will be easier for some areas of the mortgage market than for others.
NatWest says it is currently working with its partners to extend its desktop valuation capacity, but will not proceed with cases that would normally require a face-to-face visit and is no longer utilising automated valuations.
For residential purchases that don't require an internal valuation, automated and desktop valuations can keep the pipeline running, and many lenders will likely rely more on these where they can.
However, NatWest outlined a list of cases is can no longer currently proceed which include buy-to-lets, new builds, flats, properties over £3m, and the majority of cases over 80% LTV.
While lenders are now focusing on implementing contingency issues surrounding the valuations issue, this will likely help mainstream, residential lending at lower LTVs.
Johan Groothaert, CEO at Fiduciam, said: “We lend on residential property against desktop valuations in the current environment. However, where we are lending against more bespoke and complex properties, e.g. some commercial properties, this type of valuation does not provide the required level of reliability and hence we require a full RICS valuation for such properties.”
Paul Fryers, managing director of Computershare Loan Services, added: "Generally, desktop valuations are more likely to be used for lower risk transactions, such as low LTVs and standard properties, although globally there has been increased confidence in their use over the last few years as the technology continues to evolve. However, while the time when physical inspections largely become a thing of the past no longer seems as distant as it once did, it is still very much the case at present that many lenders and their funding sources believe a physical inspection is a required ingredient of surveys, particularly for more complex and higher risk transactions."
However there is good news on the horizon.
Joe Arnold, managing director of Arnold & Baldwin Chartered Surveyors, said: "The market can continue as we use desktop valuations and we have already been advised that physical inspections will not be mandatory for many of our lender clients. When it comes to placing a case, it is important for brokers to consider the valuation techniques accepted by a lender and to work with surveyors, like Arnold & Baldwin, that are able to deliver those desktop valuations."
Specialist lender TML has suspended residential lending but buy-to-let applications are unaffected because its funding is not dependent on capital markets. The lender says it is also exploring further use of desktop valuations in view of the government’s social distancing instructions.
There are therefore still lenders, predominantly specialists, conducting buy-to-let, remortgage and residential transactions during this pandemic.
Coventry Building Society is increasing its maximum allowable LTV for non-physical valuations to 85% for residential applications, which will enable a large chunk of the market to continue with their application.
'Big Six' lender HSBC will also HSBC will also accept AVM valuations up to 85% LTV on purchases and 80% LTV on remortgages.
Additionally, some fintech firms are able to bridge the gap between first-time buyers' deposits and a 60% LTV mortgage, which a number of banks have capped new lending at.
Vadim Toader, CEO of Proportunity, commented: “The banks lowering their LTVs to 60% means customers must now put down at least 40% deposit. Many potential first-time buyers are in situations where they “need to buy”, such as couples expecting a baby.
"We can lend up to 25% on top of a customer’s deposit. For anyone that has at least 15% deposit, they could still afford to buy with us and the new 60% LTV mortgages. We’re a lender built by first time buyers for first time buyers. In these times we need to stick together and help each other.”
Although the mortgage market will inevitably take a hit as people suspend viewings and home moves due to social distancing, the Government is still permitting moves into empty homes and people who have started the application process will, of course, want to secure their mortgage and move into their new home in a few months' time once the mortgage has completed and the lockdown has (hopefully!) been lifted.
The mortgage market has always adapted to the toughest of lending environments and the firms that embrace technology and innovation will help to keep the market moving throughout the Covid-19 pandemic.
