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Housing market is ‘suspended’ as banks tell Government valuations are ‘impossible’

Banks are calling for the whole housing market to be suspended during the crisis and this morning The Times front page lead story said it had already happened.

It splashes with the headline: “Virus prompts No 10 to suspend housing market”.

The Times headline and story comes after mounting pressure from lenders to put the market on ice. The Times today concludes that the housing market is suspended anyway, with viewings cancelled, instructions to people to delay moving, and mortgage finance drying up.

The Daily Mail’s front page splash headline is “Don’t move home”. Its story says that the housing market is “all but frozen”, calling it a shut-down, and says banks have been lobbying for a full freeze on the property market.

Today’s Telegraph business section carries the splash: “Government suspends the housing market”. The paper says that the housing market “was halted last night by the Government after financial institutions said they could no longer operate properly”.

Today on BBC’s Radio 4 broadcast a similar report this morning, and the Financial Times is covering lenders’ concerns.

But an agent last night warned against banks trying to undermine the market rather than support it, and called on the Government to ignore lenders’ demands.

Banks pressing to freeze the market have expressed concern to ministers about the impact of the pandemic on valuations.

They have also expressed concern about giving credit when the economy is in freefall.

Lenders have told ministers that it has become impossible to survey properties.

UK Finance, the trade body for lenders, has written to its members saying it is seeking urgent clarification over the future of the market, “particularly as physical property valuations are no longer possible”.

One property lawyer, Laura Conduit at Farrers, told the Financial Times that banks will have to decide whether they can rely on valuations using videos of properties.

She said: “We haven’t got a clue what the value of anything is.”

Agent James White, of Yorkshire agent Belong, told EYE last night: “Time and time again, whenever there is a wobble in the property market, the banks can be relied on to undermine it.

“This time around, the market needs the full support of the banking system in order to avoid a collapse in confidence and house prices.

“If they implement a complete stop, who knows what will happen to house prices and repossession numbers?”

He added: “Given that the underlying fundamentals of low interest rates, steady demand and excellent employment levels created stability before the coronavirus pandemic, surely it is in everyone’s interest not to add to the woes of the economy and property market.”

Some lenders, including Lloyds and Barclays, have pulled many of their products, and some will only lend to borrowers with deposits of at least 40%.

Lenders have also said that their call centres are clogged with anxious home owners requesting mortgage holidays.

All told, tens of thousands of borrowers are said to be looking for payment breaks, but some are said to be pushing for breaks that they do not really need

Yesterday, Nationwide launched a dedicated coronavirus support page in order to free up phone lines and reduce waiting lines for customers including vulnerable people genuinely needing a payment break.

One broker, Mark Harris, chief executive of SPF Private Clients, said: “Lenders are throwing all their resources into dealing with payment holiday requests.

“But in the same way that people are stockpiling food they don’t need, there are selfish borrowers who are asking for payment holidays when they don’t need them.

“This is blocking the phone lines for those who do. Borrowers should ask themselves: can I pay the mortgage this month? If the answer is ‘yes’, then keep off the phone to your lender and let those who do need a payment holiday get through.”

He added: “Borrowers may be worried that there is a funding crisis. There isn’t – the banks are awash with liquidity.”

However, he said that not all banks are set up for staff to work from home, and that call centres are operating on skeleton resources.


Source: Property Industry Eye

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Are ‘imperfect valuations’ of commercial property driven by high rent levels?

The true value of many commercial properties is an understanding that a surveyor struggles to appreciate, one property finance specialist has claimed.

A recent poll conducted by Bridging & Commercial found that 58% of respondents did not believe that the UK commercial property market was currently being valued fairly.

A quarter (25%) felt opposite, while 17% claimed it was partly valued fairly.

Why do people believe commercial property isn’t currently being valued fairly?

“Many commercial properties’ true value is an understanding that a surveyor struggles to appreciate and quantify, especially when there is growth or development potential,” said Chris Oatway, director at LDNfinance.

Shahil Kotecha, CEO at Pivot, highlighted that so-called ‘imperfect valuations’ were down to seemingly high levels of rents.

“Since the financial crisis of 2008, commercial property landlords have sought hard to keep their premises tenanted and also [the] level of rents in the lease agreements high.

“They do this by offering tenants lots of incentives at the beginning of the lease, such as rent-free periods, stepped rents, capital payments, help with fitting out etc.

“These incentives lead to higher rents being paid after the inducements to let have expired than would be the case if rents had been paid from day one of the lease.

“Investors believe that valuation surveyors pay heed to only these headline rents, thus leading to imperfect valuations and the belief that the valuation is not fair.”

Ludo Mackenzie, head of commercial property at Octopus Property, pointed out that the commercial property market had enjoyed nine years of growth, during which yields had returned to levels last seen at the tail end of the last cycle.

“Inevitably, people feel that value is hard to find and the probability of a correction is somewhat higher than the probability of further yield compression.

“The opposing view is that UK commercial property pricing looks attractive against 10-year gilt yields, offering secured income returns in a low yield environment.”

However, Philip Treadwell, associate director at De Villiers Surveyors, felt that the valuation of property could be opinionated with an applicant’s expectations perhaps sometimes higher than the market would pay.

“This can lead to disparity over the perception of fairness in a valuation.

“This is being highlighted more in the current market with De Villiers’ commercial valuers receiving feedback from buyers and selling agents of a general uncertainty, with interest rates poised to rise and Brexit on the horizon.

“Consequently, some valuation expectations are falling a little further, but this will only reflect what buyers are likely to pay at the current time.”

What impacts commercial property valuations?

Damien Druce, director and head of intermediary sales at Assetz Capital, said that from his conversations with intermediaries, they felt that surveyors still approached commercial property particularly cautiously, and that this was a legacy issue from the global economic crash.

“The valuers may well have a good point, however, as the valuation levels reached for tenanted property around 2007 were far above their vacant possession value and caused huge losses at lenders when some tenants failed in the crisis.

“Taking a more sensible approach on yields is a good thing we feel on the whole and, in the end, will be to the benefit of investors and lenders alike.

“However, on the unhelpful side is that valuations are now tending to be caveated with the unknown impact of Brexit, which can lead to lender uncertainty over the security offered and that isn’t supportive to a well-functioning lending market.”

Shahil added that Brexit negotiations were clouding the outlook for commercial real estate.

“A fear that businesses are looking to relocate away from the UK in droves has led to mark down in asset values.

“In reality, with barely a year to go to Brexit, there is no evidence of droves of businesses preparing in earnest to relocate away from the UK.”

Meanwhile, Paul Riddell, head of marketing and communications at Lendy, said commercial properties tended not to be traded with openly quoted prices, unlike residential properties.

“Valuers provide an ‘opinion’ of value [based] upon their own commercial acumen, market data, local knowledge and financial information about the property in question.

“While a particular commercial property may be attractive to one purchaser/investor, it may not be attractive to another.

“This is not different to the residential property market, where sentiment and supply and demand can affect value.”

Can improvements be made to commercial property valuations?

“The inclusion of a conversion-to-residential value could help give some additional strength to a commercial valuation report – given the strength of the residential market – and give all parties in the transaction further options and potentially improved perceived security as circumstances and times may change in the future,” said Damien.

Philip said that valuation methods had remained relatively unchanged for a number of years, with most guidance provided by the RICS.

“We try to ensure our valuations are as fair and robust as possible and, to achieve this, we will speak to local commercial agents and include high levels of relevant comparable evidence within our reports so both the bank and applicant can see how the figure has been concluded.

“Formulating any valuation is based on transactional evidence and, unlike residential property, commercial evidence is far more complex and less numerous.

“An improved clarity of transactional information would be welcome, and perhaps standardising the way property is marketed and subsequently reported upon post-sale will allow a greater degree of accuracy.

“De Villiers, as do most surveying practices, use peer review, so no valuation will be released without at least two surveyors agreeing to the conclusion of value.”

Source: Bridging and Commercial