At the beginning of the year, we became the first dedicated buy-to-let (BTL) lender to integrate automated valuation model (AVMs) into our products. In August, we unveiled a new range of 2-year and 5-year products available through an AVM. These past nine months have provided a really valuable insight into AVMs, and the benefits they can bring to our clients.
First, what is an AVM?
In simple terms, an AVM is a valuation that combines mathematical or statistical modelling with databases of existing properties and transactions to calculate property and rental values.
An AVM is most effective when there are similar properties nearby that can be used as the basis for comparable evidence. A property on a housing estate or a street of terraced houses is the ideal for this type of valuation. For an AVM to be accurate, recent physical valuations of existing homes must be available.
We’ve seen first-hand just how AVMs can transform the buy-to-let mortgage process. In such a changeable market, timing can make or break a deal.
Brokers must act with real urgency to support their landlord clients and it is only right that lenders match them for pace. AVMs play a major role in speeding up the loan process, particularly for standard properties.
AVMs have helped us to enhance our offering and deliver a faster service at a reduced cost, which is absolutely critical.
This offers significant benefits for clients. We have found that an AVM application is on average three times faster than a standard application, with some cases receiving an offer within 24 hours of the decision in principle (DIP). We can also offer a saving of on average £500 by removing the need to pay valuation fees. In just one example, one of our clients saved as much as £4,000 in valuation fees across their portfolio.
Within parameters
That is not to say that AVMs are the answer in every situation. They become more challenging for valuations of unusual or complex properties. This is because comparables are hard to come by when properties are not standard. For example, an AVM is unlikely to be accurate for a large, detached house or a multi-unit freehold block (MUFB).
For this reason, our AVM products are only available for standard properties. Our new AVM range includes 2-year standard options available at up to 75% loan-to-value (LTV), with rates starting at 3.74%. Non-portfolio landlords with three or fewer mortgaged properties can access 5-year standard products, also available at up to 75% LTV, with rates beginning at 4.49%. All products are available using our variable fee structure for enhanced affordability.
AVMs also do not function well when there is a gap in valuations data. This problem is neatly illustrated by what happened during the pandemic. Many lenders turned to AVMs simply because they could not carry out physical valuations during lockdowns. But gaps in data meant AVMs were trying to calculate a valuation based on older, historical data and could not be used to provide accurate outputs with regards to current market conditions
But in normal times physical valuations are readily available, providing recent real-world data. In addition, AVM technology has moved on apace in terms of speed and more sophisticated data sets. AVMs can now draw upon property data such as the number of bedrooms in a property, whether it has more than one kitchen, and whether it is next to or above a commercial property.
So, what have we learned
There will always be a place for physical valuations. But what is certain is that, where and when the circumstances are right, AVMs offer the simplicity and speed that is standard in today’s world. Our clients expect quick decisions in other areas of their lives, particularly in the retail sector. They want products suited to their needs, available day and night, at their convenience.
The AVM, used wisely, is a great way of providing a service that meets these expectations. It brings confidence and certainty to lenders, brokers and their customers.
We’re here to help our broker partners support landlord clients with the AVM product range. Our latest launch further proved our commitment to product innovation, staying close to the market and working collaboratively with funders to deliver a competitive range of products.
Through this approach, we remain incredibly agile. We are able to help our broker clients meet a broad range of landlord requirements.
Rob Stanton is sales and distribution director at Landbay
