Sponsored: Getting smarter insights into residential mortgage valuations

CoreLogic general manager, strategic initiatives Louisa Chipkin, outlines how data and analytics can help lenders make sense of a changing market and grow their business.

As regulatory scrutiny heightens in the Australian mortgage market and public discussion of affordability and property overvaluation continues, insights on the activity surrounding a lenders’ mortgage business becomes ever more important. CoreLogic is in a unique position to be able to assist lenders by leveraging the data and analytics available from its valuation platforms which provide ordering and workflow services to over 60 lenders across Australia and manage over 95 per cent of valuer-provided valuations (Desktop, Kerbside, Short Form and Long Forms).

Desktop: A report prepared by valuers that produces an indicative assessment of value. It involves no physical inspection of the subject property, rather a web based solution that provides the valuer with relevant data and imagery relating to the property, and local market, enabling the valuer to make an informed decision as to value and related risks.

Kerbside: A report prepared by valuers that produces an indicative assessment of value. It involves sighting of the subject property from the street, there is no physical inspection of the subject property.

Short Form: A formal report prepared by valuers that produces an assessment of value. It involves a physical inspection of the subject property (both internal and external) and requires compliance to API PropertyPro guidelines, outlying certain property types as in or out of scope.

Long Form: Similar to a short form, involving both an internal and external inspection of the property, however a more detailed full narrative formal valuation report. Generally used for properties which are of high value, or more complex and out of scope for PropertyPro.

Insights from CoreLogic platforms indicate a continued growth in valuation activity over the first quarter of 2017 with national volumes increasing year-over-year (YoY) for the second quarter in a row, after three quarters of continued decline in the first nine months of 2016. National growth was 3.2 per cent in Q1 2017 compared to Q1 2016, with the largest growth coming from Tasmania (16.3 per cent) and South Australia (7.2 per cent), while Western Australia exhibited negative growth (-1.8 per cent).

The recent quarter increase is contrasted with April valuation volumes being down compared to February and March. While more than one single month of data is required to determine a trend, we may be starting to see the peak of the cycle. Reduced valuation activity combined with the CoreLogic Home Value Index recording the lowest capital gains in the month of April since Dec 2015 (just 0.1 per cent growth across capital cities), indicates we may be nearing the peak of the market. Only time and data will tell.

Smart growth

Monitoring trends by the type of valuation performed across the quarter observed 76 per cent using the Short Form; 12 per cent Kerbside; 11 per cent Desktop; and 1 per cent Long Form. Desktop volumes overtook Kerbside in March for the third time ever (last occurring in August and October 2016). This is significant and supports the industry trend towards simplification and reducing turnaround times. Furthermore, Desktops are the only valuation type with growth across all states in the most recent quarter (YoY).

Over the last 5-10 years, lenders have adopted a lower risk profile with a greater proportion of loans (by value) written in lower LVR bands. In fact, more than 75 per cent of loans have been at LVR <80 per cent since Q4 2014, and steadily increasing since. Furthermore, there has been significant growth in the 60 per cent LVR band over the last 2 years, increasing from 21.4 per cent in Q4 2014, to 24.9 per cent Q4 2016 (Source APRA Table 1c: ADIs’ new housing loan approvals).

With the rise in lower leverage lending and these loans being candidates for Desktop and/or Kerbside valuations, why are so many short form valuations still being performed? Do all of these valuations require a physical inspection? Indeed, some will and do, however in instances where values are below $1.5 million, and robust, timely data exists for the subject property (including relevant comparable sales and property imagery), one might suggest lenders would benefit from greater utilisation of Desktop and/or Kerbside valuations to reduce turnaround time, enhance customer experience and save on valuation costs, without impacting risk profile. This will enable lenders to grow their businesses more quickly in areas where they have the appetite to do so and achieve “smart growth”.

In a recent Mortgage Valuation Activity Share Report by CoreLogic, lenders are provided with insights into their performance and market share across valuations nationally, by state, capital city, SD and SSD, a leading indicator of mortgage originations market share. The report can use used by lenders in multiple areas:

• Product: Measure success of business planning and performance across geographies with a focus on national share of activity, state and regional share including top areas of growth and decline. Assess performance of certain marketing campaigns, credit policy changes or pricing strategies.

• Distribution: Assess the effectiveness of their distribution footprint and see results in the context of total market activity.

• Risk: Monitor areas where activity is significantly above typical lender activity and relative to wider market.

The mortgage market is more dynamic than ever before with lenders operating in a rapidly changing regulatory, policy, pricing and competitive landscape. This is also underpinned by Sydney and Melbourne markets nearing their peaks, oversupply concerns in certain sub-markets, low interest rates (albeit increasing) and housing affordability concerns. This cauldron of factors means lenders need more actionable insights than ever before to stay across nuanced market developments and adjust levers accordingly.

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