The Department of Trade and Industry does not seem to think it is right. It is due to publish a report next month about mortgage valuations, based on an investigation by the Monopolies and Mergers Commission. The MMC's findings remain confidential, but those who have given evidence or seen draft chapters of its report sense a wind of change. The Cheltenham and Gloucester Building Society stopped charging mortgage valuation fees last month, and others are offering refunds to some customers while they ponder their long-term position.
Few in the property industry are prepared to argue with the view of Michael Pattison, chief executive of the Royal Institution of Chartered Surveyors, that lenders rather than borrowers will bear the cost in future.
Mortgage valuations became a problem largely because of the recession. As property sales fell, banks and building societies made up some lost revenue with valuation fees, estimated to be worth about pounds 170m last year. Independent valuers and surveyors, who began losing out as lenders used their own staff to carry out valuations, complained of being ousted by less competent people.
When the major lenders do go to outsiders for a valuation, they use a 'panel' of local people. The lenders say you get on the panel by being the best; the surveyors say the secret is to bring the lender mortgage business. A spokesperson for one major building society admitted: 'The starting point for us is to secure our loan, but if we have a relationship with them on the side, that is not unhelpful.'
The public has also been complaining about valuations. Sales have been collapsing as a result of valuations well below the price agreed by both parties: 'negative equity' and large-scale defaulting on mortgage payments have made valuers extra cautious. And when the deal falls through, the buyer still has to pay for the valuation.
Banks and building societies generally charge between pounds 125 and pounds 450 for a valuation report, depending on the price of the property (the Halifax, for example, charges pounds 165 for a house worth pounds 100,000). They give no explanation as to how a fee is arrived at, but, usually, only 60 per cent of it is passed on to an outside surveyor or valuer.
As the mortgage lender is the client, the valuer has no duty to the buyer or seller of the house to explain the valuation. And unless negligence by the valuer can be proved, buyer and seller have no comeback against an unfavourable report.
George Edwards has been fighting a valuation on his house in Harrogate for 18 months. He asked three local estate agents to value his four-bedroom home. The Halifax suggested a price of pounds 79,950; Hey and Co put it at pounds 75,000- pounds 80,000; and Dacre, Son and Hartley pounds 80,000. All these figures were put in writing by the agents. Mr Edwards applied to Barclays for a mortgage - he was considering either selling the house or remortgaging it - and the bank carried out its own valuation. Its figure was pounds 63,000, which Mr Edwards disputed. Barclays agreed to a second valuation, which was carried out by Dacre, Son and Hartley. The company that one week earlier had advised Mr Edwards to ask pounds 80,000 now valued it at pounds 60,000.
When Mr Edwards asked the firm to explain the 25 per cent drop, it replied: 'The difference between the two values is down to one valuation based on a security value for loan purposes and the other a market valuation for sales purposes.' This is exactly what people have suspected valuers of doing over the past three years, though they have had no way of proving it.
Dacre, Son and Hartley would not comment further, but suggested that pounds 80,000 was an asking price rather than a realistic sales figure. Mr Edwards argues that, in the depths of a recession, no agent would suggest asking 25 per cent more than a house was worth, because no prospective buyers would come through the door.
Mr Edwards is one of the few lay people to have given evidence to the MMC, but he speaks for thousands of aggrieved buyers and sellers. The MMC investigated a variety of valuation questions raised by the possible monopoly position of mortgage lenders; and on fees, at least, Michael Pattison thinks the message got through. 'The lenders need the valuation report for their own purposes. They have a duty to satisfy themselves about the
security of the loan. Therefore, they should pay for it.'
The Council of Mortgage Lenders is not admitting defeat, though it does not deny that change is likely. Its spokeswoman, Sue Anderson, said: 'If lenders pay, they will simply pass on the cost in other ways, through a hefty arrangement fee or higher interest rates. Is that any better for the consumer?'
However, it is doubtful that, in today's competitive market, the building societies and banks can afford to pass off the valuation fee under some other disguise; and they cannot afford to turn away mortgage business. So, while the MMC report is pending, one thing is clear: if you are negotiating a mortgage, particularly as a first-time buyer, you should ask if your lender is willing to forgo the valuation fee or to refund it later. If not, you can always take your business elsewhere.
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