Mortgage Loan Lottery

I was speaking to a loan valuer recently and he mentioned a bizarre situation that cost a purchaser many hundreds of pounds in fee costs.

The Valuer (Bob) was sent a character loan valuation instruction on a Victorian house in the south of England. On inspection Bob noted that the rear kitchen/bathroom wing of the building was constructed in half-brick form, shared for the period in that district. Technically this part of the home was below habitable standard despite these walls had been weather-proofed externally and set internally with a thick render. The ratio of sub-standard wall to cavity complete-standard walling was about 20 per cent.

Bob prepared his report in accordance with that Loan Company’s Valuers Manual and they accepted it and offered the client purchaser loan finance consequently.

Unbeknown to Bob as his report was being considered the client purchaser decided to change lenders for a better interest rate just announced by Company B. Ten days later Bob received, by pure chance, the instruction to value the same home again.

Bob prepared another report. However, this second report was very different from his past report. The second report simply said that the home did not comply with that Loan Company Valuers Manual criteria and was declined as being permissible security. In other words no loan could be offered.

The reason behind this change in adequacy of security was stated as being that the wall construction was sub-standard and the Loan Company did not lend on sub-standard forms of construction.

Bob had been paid 400 pounds sterling in total for his two inspections. The client had paid over 700 pounds sterling in total mortgage application fees. Estate Agents in the character chain were many thousands of pounds out of pocket on lost commission charges. The rippled effect caused these individuals, and many others, enormous loss of revenue, waste of time and effort plus related stress and disappointment.

Who was to blame for this bizarre situation?

It may be unconventional but I believe it is the Loan Companies en-mass. The Council of Mortgage Lenders, the body that regulates loan lending, considers allowing individual companies the right to have differing lending criteria is satisfactory already if the public are not told these vital policies.

I am sure each Lender is, in the small print somewhere, under a duty to publish their leading criteria and so “it is not their fault that customers choose not to read lending terms given to them”.

So what can be done about this bizarre situation?

This is the easy bit but is something that seems to always be talked about but never completed. How about we properly control Estate Agents including the introduction of standard examinations upon a syllabus that includes construction recognition and general character compliance issues to Lenders Valuer Manual criteria. OR…….

The Council of Mortgage Lenders should be granted the strength to issue only one set of lending criteria to all Valuers on behalf of all Lenders.

Any system, as is currently in place, that throws the emphasis on to a non-trained ordinary member of the public to decide matters of technicality of construction, is fundamentally flawed and unfair.

I believe the Office of Fair Trading are failing in their duty to provide effective monitoring and regulation in a marketplace that is well known for its protectionist and monopolistic tendencies that function against the best interests of the consumer.

I also believe the Royal Institution of Chartered Surveyors has too long buried its head in red-tape to accept the real challenges before it: why have they not recognised this simple basic market flaw that places their membership is a rather strange relationship with the end client, the home buyer.

By the way — if the Home Information Pack scheme had had a Sellers Survey (like the system that currently operates in Scotland) included then none of this nonsense would be possible. Oh well, we cannot expect too much from ineffective Government and less than fully impartial market Regulators, can we?

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