Lender lowball valuations stifling mortgagors

Issues have arisen in recent months, including lower-than-expected valuations pushing borrowers into higher loan-to-value ratios and delays caused by “unnecessary” full valuations.

Speaking to The Adviser, the director at TM Finance Group, Belinda Gibson, outlined that she had clients buying a property under the government-backed First Home Buyers Guarantee Scheme (which enables an eligible home buyer to purchase a home with as little as 5 per cent deposit without paying lenders’ mortgage insurance [LMI] as it is guaranteed by the government).

Ms Gibson said that given the guarantee, she would typically state that it was a purchase at 80 per cent. However, she said the application was rebuffed by Westpac because it had “come back and said it was a 90 per cent LVR (loan-to-value ratio) [and therefore] needed a full valuation”.

Ms Gibson said that while “valuations are always low” and that there are several “niggling things banks are doing at the moment”, she added that she had never seen lenders come back like this before.

She added: “[This] is not in the spirit of the scheme, because the scheme provides them with extra security. All they [the lenders] are doing is slowing down the approval process [because] they won’t accept the automated valuation report.

“Now we’ve got val (valuation), get a finance clause extension, because they deem the LVR to be higher even though there’s a government guarantee in place for the lending value over 80 per cent.”

Managing director at Equilibria Finance, Anthony Landahl, agreed that valuations were becoming a concern.

He stated, particularly for “refinances for those who may have purchased at the top of the market and at over 80 per cent LVR and are now looking to refinance,” valuations had left them hamstrung.

Mr Landahl explained: “It is in these situations where we may not be getting a valuation to take us to sub-80 per cent and therefore to be able to refinance to a lower rate.”

According to the Sydney-based broker, the issue was not product or lender-specific, but seemed to be related to restructuring existing debt from the period of rising values and maximum borrowings.

“These are the challenges when seeking a higher valuation to get a loan-to-value ratio under 80 per cent,” he told The Adviser.

As such, Mr Landahl said he would like to see lenders increase the LMI threshold for borrowers with “a good credit history, [who have] not missed a repayment, and [who] are securing a better rate”, so they do not have to pay LMI again.

That way, he says, the borrowers would be able to move to a better rate after a period of “good account conduct”.

Rishi Bhatia, mortgage and finance broker at KRIA, told The Adviser that the valuation concern largely depended on where the client had purchased.

He stated: “During COVID-19 many clients bought land that was supposed to settle or title within a year. Most of my customers are only titling now – but their interest rates have tripled and they can’t afford it.

“So even if the valuations are still holding, their serviceability is really getting impacted. These are the challenges in the market at the moment.”

[Related: The Word: What have been the biggest challenges you’ve found when refinancing?]