A Valuer FRICS
Gordon Brown continues to speak with the conviction of a condemned man reading from a hurriedly-conceived briefing paper This time it is mortgages (again).
No more 100% mortgages? I think that it is about time that the Prime Minister carried out a simple calculation as follows: Suppose that the Government (sorry, Northern Rock) lends 80% on a £100,000 property – that is an £80,000 mortgage. Then let’s suppose that the property falls in value by 20%. That means that there is an £80,000 mortgage on an £80,000 property. That is what they call a 100% mortgage. When a householder has no equity in his property – that is also a 100% mortgage. Negative equity just means that the mortgage is over 100%.
That brings one rather neatly to one organisation which has kept its head down throughout the whole sorry mortgage mess. The Royal Institution of Chartered Surveyors. They should have come out with their hands up many months ago. Why? Because their members have been the ones who have been valuing properties. The most deflationary thing that the Government can do as far as property prices are concerned is to ignore the sulking banks for a while and have a serious chat with the RICS.
There was a time when the RICS was a leader – an organisation whose valuations were sacrosanct. The RICS has now become a follower which does exactly what the banking industry tells it and has contributed more than any other organisation to the ridiculous house price rises of the last 10 years. But wait – their blind slavishness to the banks is far worse than merely following orders.
Imagine that you are a Bank and you want to lend and you also want to make sure that the properties that you lend on have the benefit of a high-enough valuation. How do ensure that there will be no problems with house valuations? How do you make 100% sure that the valuation will be exactly the one that you need?
Simple – YOU BUY YOUR OWN VALUER!
For example, Halifax valuations are carried out by Colleys. Who owns Colleys? The Halifax. One is not suggesting naughtiness but when valuation fees are a function of the valuation and the value of properties in-mortgage represents a lender’s assets, the temptations do not have to be spelled out.
The RICS should assert itself – otherwise there is a real danger of the property inflationary spiral replicating itself in a few years time. Independent property valuations and a return to more objective valuations will have an immediate impact. Currently, there is far too much reliance on the “supply and demand” argument and incidentally, the “drive-by” valuation – but that’s another story.
In the last few years, the pressure on valuers has been to “value up”. The valuers value up and then the accountants come along later and value down. Not an ideal system.
Time for the RICS to make a stand – if that’s all right with the banks.