Defining the role of valuations in mortgage lending

Abstract

In cases where property investment is financed, two important criteria apply in the determining of that finance. The first criteria is the ability of the investor to service the loan, the second and perhaps most crucial is the relativity of the purchase price of property to its value. This paper is a critique of the valuation profession and the use of valuations to engineer the lending of money after the purchase price of property has been determined. This is in contrast to the use of valuations prior to the purchase of property, in which the valuation may influence the price paid for property. A survey of several professions has been undertaken in determining the importance of the valuation, alongside other advice in the property purchase process. Further to demonstrating the potential use of valuations prior to purchase, this paper makes a contribution to expanding the role of the valuation profession, through the valuer being engaged by the borrower, rather than the long standing tradition of the valuation profession being the sole domain of the lender.