Home reports were welcomed, but now they need tweaking - David Alexander

The introduction of the home report scheme in Scotland was to provide better information for buyers and to reduce the number and cost of multiple surveys and valuations being carried out. Introduced in 2008, home reports were broadly welcomed by everyone in the sector as it simplified the process, unified the information and details provided on any property, and reduced the costs of buying by removing extraneous surveys from the process.

However, as the market has progressed there is concern among many buyers that the home report may have become a somewhat blunt instrument when used for valuing and mortgage purposes and that there may need to be some tweaking of its operation to meet the current needs of the market.

In particular there is a trend for all home report valuations to be quite a bit below the actual sale price of many properties – the figure often cited is ten per cent below – meaning that buyers can only borrow up to the valuation and have to provide any additional offer in cash. For many, who may have taken years to save for a deposit, this is an impossible situation which limits their ability to buy and unfairly favours those who can draw on the bank of mum and dad for support.

The impact of this is particularly marked in very popular areas where many first time buyers and others can feel locked out of the market by the system rather than by affordability.

David Alexander

With a slowdown in the market expected it would be opportune to consider two options. Either the home reports more accurately reflect the current market value of properties or lenders are less strict in their criteria for lending. The former issue may be occurring because surveyors are unwilling to realistically value a property for fear that this builds up expectations among sellers only to disappoint them if the price is not achieved.

There could then be a tendency to regularly underestimate so that the report always produces a higher sale price than expected thus satisfying vendors but frustrating buyers. Of course, the market varies across Scotland and some areas will not produce prices ten per cent higher than valuations but in strong parts of the country it would be useful to try to more accurately reflect actual selling prices. A tweaking of the current system to ensure valuations were more realistic or perhaps only a smaller percentage lower than actual prices would undoubtedly assist many purchasers with their mortgages.

Allowing greater flexibility among lenders would also be helpful without unduly damaging the marketplace. Nobody wants a return to 125% mortgages but equally there are signs that not approving purchase price lending could ultimately have a detrimental impact on the market.

If a lender believes that the purchaser can afford a mortgage on the higher price paid for a property, then why not allow this as long as it does not encourage enormous income multiples or excessively extended terms.

There is a trend for home report valuations to come in below the actual sale price

This is not about encouraging borrower profligacy but instead is simply intended to more accurately reflect actual market prices paid. There must be a middle way which would allow many more buyers to get the home they want without stretching themselves beyond their limits whilst also ensuring that demand in the market remains buoyant during a period when there is a widespread expectation of reduced demand.

The property market is always a balancing act between supply and demand, affordability and interest rates, and lending criteria. At a time when employment remains extremely buoyant, and demand remains reasonably strong, some compromise would be a useful tool in providing accurate valuations in the home report to a market that is markedly different than when the scheme was originally introduced. Flexibility in regulations is always important to ensure that shifting consumer demand is met and individual and market circumstances can be more effectively fulfilled.

David Alexander is CEO of DJ Alexander Scotland Ltd