Loan security valuation

Question 1

What different loan security purposes do you value for?

Answer 1

• Resi mortgages
• BTL mortgages
• Commercial loans
• Short term finance
• Secured loans

Question 2

How does your approach differ for different loan types?

Answer 2

Different loan types often have different requirements. For example, short term finance often is used for refurb works which requires comments on proposed works.

Question 3

Talk me through the lending credit risk management process.

Answer 3

• Identify borrowers and loan types.
• Establish a credit policy and lending criteria.
• Review loan applications and underwrite borrowers.
• Assess credit risk using credit scores and data.
• Approve loans based on creditworthiness.
• Set loan terms, interest rates, and fees.
• Formalize agreements and disburse funds.
• Continuously monitor borrower performance.
• Mitigate risks and take remedial actions.

Question 4

What role does risk management have in property lending decision?

Answer 4

Risk management dictactes lenders policy and how and what they grant loans on

Question 5

What are key differences between a loan security valuation and a valuation for another purpose?

Question 6

How do lenders use the valuation report to determine the suitability of the property for lending?

Question 7

How do you determine your competence to undertake loan security valuations?

Question 8

What effect does council tax (or other taxes) have on the value of a property?

Question 9

What factors could influence a lender’s decision to proceed?

Question 10

How is lending controlled?

Question 11

What risk analysis techniques are used?

Question 12

What is personal credit scoring / credit risk analysis / risk predictive modelling?

Question 13

How do lenders identify risk?

Question 14

What is the purpose of an audit department?

Question 15

How do you work with yours?

Question 16

What is mortgage fraud?

Answer 16

Intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property.

Question 17

When may it occur?

Question 18

How do you reduce the risk of mortgage fraud?

Question 19

What is an SAR and when might you submit one?

Question 20

What is the role of debt finance in property?

Question 21

What types of debt are you aware of?

Question 22

When might they be used?

Question 23

What due diligence would you carry out for a loan security valuation?

Question 24

What financial products are relevant to your market?

Question 25

What negligence caselaw are you aware of relevant to your duty of care?

Question 26

Explain the duty of care you owe to an owner occupier and commercial BTL investor.

Question 27

What caselaw relates to this?

Question 28

What do you understand by the Smith v Bush and Scullion v Bank of Scotland cases?

Question 29

hat do you understand by the Harris v Wyre Forest DC case?

Question 30

Explain the industry-wide process to value tall buildings.

Question 31

What height of building does this relate to?

Question 32

Why has this process been introduced?

Question 33

What is the External Wall Fire Review?

Question 34

How does this work?

Question 35

hat do EWS 1 forms no longer need to be used for?

Question 36

How would you complete a EWS 1 form?

Question 37

How would you value a building over 18m where materials are thought to be potentially combustible?

Question 38

hat RICS guidance relates to how you would approach the valuation of a multi-occupancy high rise building with combustible cladding?

Question 39

How would you decide which approach to take in this type of valuation?

Question 40

What is a FRAEW?

Question 41

How would you consider a FRAEW on a secured lending instruction?

Question 42

What is a FRAEW produced under?

Question 43

What is PAS 9980?

Question 44

What other considerations would you make on a secured lending valuation of a multi-occupancy high rise building?

Question 45

What issues are you aware of in relation to mortgage lending and spray foam insulation?

Question 46

Explain your understanding of how a lender might consider non- traditional forms of construction.

Question 47

Explain what RICS guidance has been published relating to secured lending valuations of residential blocks of flats.

Question 48

What does this Guidance Note say about EWS1 forms and when they are required due to visible cladding?

Question 49

When is the guidance effective from?

Question 50

What RICS guidance relates to residential leasehold properties and secured lending valuation?

Question 51

What principles from this are you aware of?

Question 52

What sections of the Red Book and the UK National Supplement should this guidance be read alongside?

Question 53

How do you comply with VPGA 2 of the Red Book Global?

Question 54

Explain what VPGA 2 says about previous or current involvement.

Question 55

What type of involvement might result in a conflict of interest?

Question 56

you were instructed by a party who is not the intended lender, e.g., a prospective borrower or broker, how would you record this in your terms of engagement?

Question 57

Do you need to enquire whether the subject property has been subject to a recent transaction or provisionally agreed price, if so – why?

Question 58

What do the terms ‘mark to model’ and ‘mark to market’ mean?

Question 59

When might you agree a special assumption in a secured lending valuation?

Question 60

Explain the additional reporting and disclosure requirements set out by VPGA 2.

Question 61

How would you apply VPGA 2 to a property that is, or will be, owner- occupied / held as an investment / intended to be or the subject of development or refurbishment?

Question 62

How have you applied UK VPGA 10, 11, 12 or 13 (depending on specific valuation and asset type)?

Question 63

What does the UK National Supplement say about the use of the DRC method?

Question 64

How would you formalise any communication channels with the borrower?

Question 65

What is a panel agreement?

Question 66

Explain your understanding of the RICS Residential Mortgage Valuation Specification.

Question 67

Where would you find this?

Question 68

How do you reconcile any differences between the 2014 and current UK National Supplement editions when referring to the RICS Residential Mortgage Valuation Specification?

Question 69

If you provide advice on residential mortgages, what FCA guidance are you regulated by?

Question 70

What is a regulated mortgage contract defined as?

Question 71

Under a regulated mortgage contract, what is residential property defined as?

Question 72

What is the role of the FCA in relation to secured lending?

Question 73

What is the role of the valuer under UK VPGA 11?

Question 74

What is Projected Market Value (PMV) defined as?

Question 75

What are the specific requirements of UK VPGA 11 when adopting PMV as a basis of value?

Question 76

Is PMV a projection or a forecast?

Question 77

Does PMV require the valuer to adopt a special assumption?

Question 78

What does UK VPGA 11 say about the extent of a valuer’s inspection and investigations?

Question 79

In this respect, is the valuer expected to investigate roof voids and under floor voids?

Question 80

Should the valuer move furniture and floor coverings?

Question 81

Should the valuer test services?

Question 82

Should the valuer consider the EPC rating?

Question 83

What additional requirements relate to the inspection of a flat or maisonette?

Question 84

How should you record a lender’s instruction to provide a valuation without internal inspection?

Question 85

What level of investigations are required by the valuer into legal, planning and environmental matters?

Question 86

What assumptions does UK VPGA 11 require the valuer to make without verification, unless limited enquiries reveal otherwise?

Question 87

Explain some of the reporting requirements set out by UK VPGA 11.

Question 88

How should the valuer treat incentives in a secured lending valuation?

Question 89

How would a valuer report an insurance replacement cost if requested by the lender?

Question 90

How would you adhere to the BCIS guidelines in doing so?

Question 91

Explain the valuation basis where a property is the subject of possession proceedings following default.

Question 92

How would the absence of a new build warranty affect value and security for lending purposes?

Question 93

How would you deal with speculative development value in a mortgage valuation?

Question 94

Explain your understanding of Section 13 of Building Societies Act 1986 in relation to inspection for a mortgage valuation.

Question 95

How would you inspect a loft for a mortgage valuation?

Question 96

Would you inspect the drains during a mortgage valuation inspection?

Question 97

When might a property be declined for secured lending purposes based on condition?

Question 98

What other reasons may lead to a property being declined for secured lending purposes?

Question 99

What does 'secured lending' mean?

Question 100

How would you report on the impact of a defective property being repaired in a secured lending valuation?

Question 101

How could an unrepaired property affect mortgagability?

Question 102

How would a repaired property, but not under a certified scheme, affect mortgagability?

Question 103

Explain how you would value a MMC residential property for secured lending purposes.

Question 104

Who provides warranties for MMCs and how would you report on these to a lending client?

Question 105

Why did the Bank of England withdraw the affordability test? What different loan security purposes do you value for?

Question 106

How does your approach differ for each?

Question 107

Talk me through the lending credit risk management process.

Question 108

How is lending controlled?

Question 109

What risk analysis techniques are used?

Question 110

What is personal credit scoring / credit risk analysis / risk predictive modelling?

Question 111

How do lenders identify risk?

Question 112

What is the role of debt finance in property?

Question 113

What types of debt are you aware of?

Question 114

When might they be used?

Question 115

Talk me through a loan security valuation you have carried out.

Question 116

How have you incorporated lender’s specific requirements into a valuation?

Question 117

hat research have you undertaken into factors affecting risk?

Question 118

What factors have you come across that affect the ability to obtain finance?

Question 119

How have you dealt with the situation where a lender’s requirements differ to those of the Red Book?

Question 120

Talk me through Terms of Engagement you have agreed.

Question 121

How have you complied with valuation standards within these?

Question 122

What research have you carried out into factors affecting valuation certainty?

Question 123

What local / wider market factors have affected a valuation you have carried out?

Question 124

Tell me about when you have valued a property subject to a special assumption.

Question 125

Tell me about how you would report to lenders / NCA about potential fraud or suspicious activity.

Question 126

At Victoria road, how do you determine what reasonable condition is?

Question 127

Talk me through your valuation?

Question 128

At High Street - why was the retention £10,000?

Question 129

What do you base retention amounts on? Why?

Question 130

At Potterton, why was no valuation provided?

Question 131

Tell me about when you have provided complex reasoned quantitative valuation advice to clients in the form of compliant valuation reports.

Question 132

Tell me about when you have used a SWOT analysis, commented on loan terms, commented on future performance of the investment or commented on the influences of the wider market.

Question 133

Describe the complex reasoning behind your recommendations to client in order to mitigate risk.

Question 134

Tell me about a specific valuation report you have provided in accordance with valuation standards.

Question 135

How have you incorporated a valuation comparable matrix, sensitivity analysis or other evidence of valuation methodology and approach into a valuation report

Question 136

Talk me through a specific valuation report you have provided in accordance with valuation standards, incorporating appropriate narrative on the strengths and weaknesses of the investment, marketability if the lender was to re-possess and the risks involved in lending in the property in relation to the loan terms.

Question 137

ow have you identified and explained the risk profile of property and how it affects clients’ needs in terms of advice, i.e. why do they need advice?

Question 138

Explain your valuation advice on a property’s suitability for secured lending.

Question 139

Explain your reasoned advice where properties are not considered suitable for secured lending due to Red Book or lenders’ requirements.

Question 140

Marykirk- tell me how you arrived at current and projected market values?

Question 141

What was your reasoned advice to the client regarding the condition of the property?

Question 142

Maryculter - Discuss the advice given with self build properties?

Question 143

What is the impact of this?

Question 144

92 property portfolio - tell me about the advice with the unum quid value?

Question 145

How did this impact the decision making and advice given?

Question 146

What are your level 2 examples? ## Footnote Summary of Experience

Answer 146

* Remortgage of a flat on Victoria Road - Took various notes on the property during inspection and produced valuation of property. No significant factors that contradicted lenders guidance were noted and therefore property was reported as suitable security for lender. * Home Report of property on High Street - large amounts of dampness was noted to areas of wall linings in the basement. The damp was extensive and posed a risk to the security if it was left. In GMVR the dampness was reported as an essential repair and a £10,000 retention was included as it was likely the large property would require tanking. * MVR of bungalow in Potterton - Property was of non-traditional 'Scandanavian Timber Frame'. Lenders guidance stated that they did not accept this type of construction therefore it was reported as unsuitable security.

Question 147

What are your level 3 examples?

Answer 147

* MVR of property in Marykirk - During Home Report areas of dampness were noted within the property, within the roofspace some areas of sarking were very damp. Externally, the roof was in a poor state of repair with various damaged tiles. Exposed electrics were also present throughout the property. Advised lender that property had seveal large defects and that a roofing contractor and electrician should be instructed to investigate defects and prepare reports on repairs needed. Included a retention of £10,000. Provided lender with market value in current condition and market value on completion of repairs. * Self build in Maryculter - Instructed to carry out reinspection of self build property. Self builds often mean providing valuation advice on partly finished properties. In this particular case the property was nearly completed and the lender only required a valuation on completion. * Large portfolio in Aberdeen - Valuation of residential portfolio in Aberdeen for commercial lending purposes. Lender requested that we provided a unum quid value as well as an aggregate portfolio value. In this case the unum quid was lower than the aggregate value.

Question 148

What parts of the Red Book Global & UK apply to secured lending? ## Footnote Loan Security Valuation - Level 1

Question 149

What does VPGA 2 say? ## Footnote Loan Security Valuation - Level 1

Question 150

What does UK VPGA 11 say? ## Footnote Loan Security Valuation - Level 1

Question 151

What enhanced protocols and disclosures are there when accepting loan security work? ## Footnote Loan Security Valuation - Level 1

Answer 151

* No previous, current or anticipated involvement with the borrower, or prospective borrower, the asset to be valued or any other party connected with a transaction for which the lending is required. ‘Previous involvement’ would normally be anything within the period of 24 months preceding the date of instruction or date of agreement of the terms of engagement (whichever is earlier), but a specific longer period may be prescribed or adopted in individual jurisdictions.

Question 152

What happened in Scullion v Bank of Scotland? ## Footnote Loan Security Valuation - Level 1

Answer 152

* Scullion bought a flat with the intention of using it as a BTL * Bank instructed surveyor to prepare valuation and supply rental figure. Rental prospects had been overstated and Scullion was forced to sell the property. Scullion attempted to sue the surveyor for overstating the rental figure which resulted in him having to sell the property. * Case established that the duty of care owed by a surveyor to a mortgagee to prepare its valuation report with skill and care did not apply where the transaction concerned an investment rather than an ordinary domestic householder purchasing a home

Question 153

Why do some lenders not accept Scandanavian Timber Framed properties? ## Footnote Loan Security Valuation - Level 2

Answer 153

* Doesn't suit lenders appetite for risk

Question 154

What financial products are available within your area of property? ## Footnote Loan Security Valuation - Level 1

Answer 154

* Conventional residential mortgages * Buy-to-let mortgages * Commercial lending * Bridging finance * Self-build funding * Secured loans

Question 155

How did you arrive at your current market value and projected market value at Marykirk? ## Footnote Loan Security Valuation - Level 3

Answer 155

* The projected market value was the market value of the property in good condition with the required repairs having been carried out * The current market value is the projected market value minus the cost of works

Question 156

What advice did you give your client regarding the condition of Marykirk? ## Footnote Loan Security Valuation - Level 3

Question 157

What advice did you give at the self build in Maryculter? ## Footnote Loan Security Valuation - Level 3

Question 158

What was the impact of the advice you gave regarding the self build at Marycutler? ## Footnote Loan Security Valuation - Level 3

Question 159

What advice did you give regarding the Unum Quid value for the 92 property portfolio? ## Footnote Loan Security Valuation - Level 3

Question 160

How did the advice you gave for the portfolio impact the decision making of your client? ## Footnote Loan Security Valuation - Level 3

Question 161

Why did you provide a nil value at Potterton? ## Footnote Loan Security Valuation - Level 2

Question 162

Why was your retetion at High Street £10,000? ## Footnote Loan Security Valuation - Level 2

Question 163

What do you base your retetion amounts on? ## Footnote Loan Security Valuation - Level 2

Question 164

At Victoria Road, how do you determine what reasonable condition is? ## Footnote Loan Security Valuation - Level 2

Question 165

Talk me through your Victoria Road valuation ## Footnote Loan Security Valuation - Level 2

Question 166

Talk me through your level 3 examples ## Footnote Loan Security Valuation - Level 3

Question 167

Talk me through your level 2 examples ## Footnote Loan Security Valuation - Level 2

Question 168

Why would a commercial style report be instructed? ## Footnote Loan Security Valuation - Level 3

Question 169

How do commercial reports differ to standard MVRs? ## Footnote Loan Security Valuation - Level 3

Question 170

What is a unum quid value? ## Footnote Loan Security Valuation - Level 3

Question 171

How did you arrive at your unum quid value? ## Footnote Loan Security Valuation - Level 3

Question 172

Whats an aggregate value? ## Footnote Loan Security Valuation - Level 3

Question 173

You said that the unum quid was lower in this case, is it always lower? ## Footnote Loan Security Valuation - Level 3

Question 174

What other advice did you give the client for the portfolio? ## Footnote Loan Security Valuation - Level 3

Question 175

What is staged payements? ## Footnote Loan Security Valuation - Level 3

Question 176

What stages of construction would you provide advice at? ## Footnote Loan Security Valuation - Level 3

Question 177

How would you value a partly built property? ## Footnote Loan Security Valuation - Level 3

Question 178

Where did the retetion come from for the Marykirk example? ## Footnote Loan Security Valuation - Level 3

Question 179

What were the defects at Marykirk? ## Footnote Loan Security Valuation - Level 3

Question 180

Why did you include a retetion? ## Footnote Loan Security Valuation - Level 3

Question 181

When would you use the investment method to value for LSV? Would you use it for a single residential property? Why/why not?

Question 182

What is topical in the field of LSV?

Question 183

How do you advise on LSV regarding flats with cladding or balconies?

Question 184

When have you advised on marketability?

Question 185

When would you advise that a property is unsuitable for secured lending?

Question 186

Would you advise on the amount or percentage of loan a lender should consider?

Question 187

How would you decide if a proposal represented a low/medium/high risk for the lender?

Question 188

How do you decide what a reasonable marketing period is?

Question 189

What is PMV? How does if differ from MV? Is it always lower? Theoretically, could it be higher? Why wouldn’t you do that?

Question 190

When does the Red Book say PMV must be used? What are the other circumstances when it is often requested?

Question 191

Why do lenders sometimes ask for a MV with restricted marketing period? How do you establish that? What is the difference between that and PMV?

Question 192

What types of valuation can be reported as a LSV?

Question 193

Can a Residual be used as a LSV? What if direct comparison suggests a different value?

Question 194

How have lenders reacted to repeal of ‘Designated defective’ status in Scotland?

Question 195

How do you advise on LSV for a stage payment on a new-build or conversion?

Question 196

Why are retentions imposed? How do you decide if one is necessary and/or how much?

Question 197

Why don’t you include rental values in the GMVR in a Home Report?

Question 198

Why do BTL lenders ask for a rental figure as well as MV?

Question 199

How do you advise on LSV if the property is already tenanted?

Question 200

Do you report rental value as furnished or unfurnished?

Question 201

Can you describe any case law relating to LSV?

Question 202

What are the potential sources of mortgage fraud?

Question 203

What is a Standard Security?

Question 204

Why might a LSV differ from conventional Market Value?

Question 205

What standard assumptions are valuers permitted to make?

Question 206

When would you report on the basis of a Special Assumption?

Question 207

Why are lenders especially cautious about new-builds/BTLs/HMOs?

Question 208

Give examples of property features lenders often reject as unsuitable?

Question 209

How does type of construction influence your advice on LSV?

Question 210

How does the number of lenders that will accept a property influence your LSV?

Question 213

Why do lenders ask for a LSV?

Question 214

Are any lenders required to obtain a LSV by law?

Question 215

What are the sources of risk to a lender and a valuer? mitigate risk? How do lenders and valuers