To help you to understand more about how AVMs work and why they are increasingly common, Bridging & Commercial has spoken to some major bridging lenders to find out why they are used and what benefits they offer.

What is an AVM?

The AVM was defined in 2008 by RICS AVM Standards Working Group as:

“Automated Valuation Models use one or more mathematical techniques to provide an estimate of value of a specified property at a specified date, accompanied by a measure of confidence in the accuracy of the result, without human intervention post-initiation.”

RICS said AVMs were most commonly used to provide estimates of capital or rental value for residential property.

They can also be used in other market sectors, such as commercial property or land.

AVMs can operate independently of any human intervention, but they can also be used to assist a qualified valuer in producing an estimate of value.

RICS added that AVMs would be subject to review and any necessary refinement in order to ensure that it complies with the ‘RICS Valuation – Professional Standards’, as this would be a valuation and no longer solely the output of the AVM.

Why are AVMs used?

Richard Deacon, sales director at Masthaven, said: “In a bridging context, AVMs are used purely for speed purposes.
 
“At a low-risk loan-to-value, they can be useful for speedy completions as they don’t require a viewing of the property by a surveying professional.”

Shawbrook doesn’t currently offer AVMs on bridging deals, but Emma Cox, sales director for Shawbrook, added: “AVMs deliver time and cost savings for brokers to pass on to their clients.

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“The valuation stage of an application is a vital step in the loan process, so any initiative that can provide a quicker decision – while maintaining quality and consistency – is highly sought after.”

However, Benson Hersch, chief executive of the Association of Short Term Lenders, said: “Lenders need to be very careful of Automated Valuation Models and bear in mind what happened in 2007/08.”

What are the benefits of AVMs?

Precise Mortgages launched automated valuations for bridging last year and Gareth Lewis, director of bridging at Precise Mortgages, felt that AVMs allowed a lender to gain suitable confidence in a value attributed to a property by taking sales data compiled by Rightmove and other similar models.

“These systems feedback a range of confidence levels,” said Gareth.

“Providing that the level is sufficient, a lender can look to rely on the value provided.

“Obviously it is down to the lender to set suitable parameters to work within, maximum LTV and value etc.

"By utilising an AVM, a lender can significantly speed up the processing of an application and completion of a loan with an offer being provided the same day as the application is received.

“No need to wait for the surveyor to be able to visit the property and provide a report.”

Emma felt that using an AVM helped applications to move smoothly from indicative mortgage offer to conditional formal offer with minimum effort from the broker.

“After introducing AVMs on our residential products back in May, Shawbrook brokers have already provided a range of positive feedback.

“The first loan to complete using an AVM was via our broker partner Sterling Capital Reserve Limited, with its team extremely pleased by the added convenience of using an AVM as the case took only 10 days from the initial AIP through to completion.”

Richard added that AVMs can be vital when tight deadlines are needed to complete the transaction.