Experts call for reform of home reports after house prices tumble

Published on Friday 27 August 2010 13:51

HOUSING market experts have called for reform of the home report system after new evidence emerged of lenders rejecting them in a bid to push prices down.

As house prices drop again there is a growing risk of sellers losing out as lenders refuse to accept the home reports they commissioned and paid for. Instead buyers are increasingly being asked to pay for a second opinion valuation that typically produces a lower figure.

Home reports - which were introduced in December 2008 and comprise an energy efficiency report, a single survey and a property questionnaire - are commissioned and paid for by the seller. But while the survey, which includes the valuation, must by law be undertaken and completed by a qualified Royal Institute of Chartered Surveyors (Rics) surveyor, not all Scottish firms are recognised by the principle lenders.

When valuations are declined, often because the surveyor used is not on the lender's panel or because the report is over three months old, the buyer has to pay for a new one which is often carried out by the lender. But experts say because that valuation is on most occasions lower than the figure in the home report, it is the seller that ultimately loses out.

Wilson Hunter, senior partner at Hunters Residential, said: "My concern is that there is a growing practice of the lender's surveyor getting a valuation that is lower than in the report and using that to renegotiate the price downwards. It isn't a widespread issue yet but it is certainly creeping in."

If the lender calculates the amount of money it will lend on the basis of the valuation rather than on the purchase price, any substantial difference can put the sale at risk. Mr Hunter predicted that if house prices fall over the coming months, which seems increasingly likely, more sellers could find their prices driven down.

"Given the length of time it currently takes to sell, if the market takes another dip we could certainly have a big problem with second time valuations coming in much lower."

The difficulty for sellers can be in knowing who is carrying out the valuation in their home report. Many sellers use specialist providers who will do parts of the report but instruct a separate conveyancing firm to carry out the survey and valuation.

Robert Carroll, managing director and solicitor at Mov8 Real Estate, reported a marked rise in the number of firms promoting low-cost home report packages in recent months.

He said: "They advertise on cost but to keep the reports as cheap as possible most of these companies get the survey element of the report done by a smaller, independent surveyor who is not on the major lenders' panels."

Mr Carroll believes that some report providers should be told to give sellers an indication of which lender panels they are on. "Otherwise sellers are buying something that is not necessarily of value to them," he added.

Neil Harrison of the Edinburgh Solicitors Property Centre, called for the government to tackle the problem or risk the home report system being undermined. He said: "The consumer is compelled to buy a document using a specified professional to prepare the contents, so that document should be able to move through the whole process and not have barriers put in place which incur additional cost for the consumer."

Sarah Speirs, deputy director of the Rics Scotland, said: "Rics is working with the Council of Mortgage Lenders (CML) to encourage their members to accept home report mortgage valuations in the small number of cases where the valuer is not included on the applicants chosen lenders panel."

The Scottish Government is currently reviewing the home report system and is expected to publish its findings in the coming weeks.