property risk – using data customer journey and other things … · 2019. 11. 20. · lending....

Property Risk – Using Data to Revolutionise the Customer Journey and Other Things That Annoy Me…

A Bit Of History - 1880

The Facts

• How much did it cost?• £220• What was the mortgage?• £120• What was the income multiple?• 3 times salary as assistant librarian • How much is it worth now?• £900k

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Looking At The Whole Journey

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ExchangeContracts

ExchangeContracts

16 Week Time Period

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Why We Built The Property Risk Hub

Property RiskTriage

Triangle

Reduce riskFacilitate more safe

lendingImprove the customer /

member experience

Valuer

UnderwriterConveyancer

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• Linking the conveyancing, valuation and underwriting processes together – the triage triangle principle

• Decision at DIP Stage – Green, Amber or Red • Collection of data on every property in the UK• Address Verified - Title Info & Plan – Insurance – Environmental -

Land Registry Data• Triage automated – AVM – AVM Plus – Desktop - PRIM – Physical

Valuation (using data to create safe AVM criteria)• Data and risks highlighted to valuers in instructions• Conveyancer provided information and searches• Reduce PVQs and improve communication/customer journey• Speed up transactions and provide certainty

The Property Risk Hub – The Solution

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• Southampton• 3 bed semi-detached• Purchase £250k• LTV 20%

Decision time 13 seconds

1. Property Decision ‘Accept’

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No further valuation assessment needed at Full Mortgage Application

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• Rowden’s Farm, Salisbury

• 3 bed detached house• Remortgage £550k• LTV 64%

2. Property Decision ‘Refer’

Decision time 15 seconds

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Further valuation assessment needed at FMACase will proceed to MVR after submission

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• Wimbledon, London• 4 bed detached• Purchase £2.8m• LTV 18%

3. Property Decision ‘Refer’

Decision time 32 seconds• Verify address 15 secs• Remaining data providers 17

secs

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Further valuation assessment needed at Full Mortgage Application

Case will proceed to Mortgage Valuation Report after submission

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Title mismatch API• This API compares Ordnance Survey and Land Registry land parcel data for an address• Ordnance Survey records observable boundaries – what a surveyor can see on the ground • Land Registry records legal boundaries – the legal extent of a piece of land• The Title Mismatch API compares the two and creates a match score, with a perfect match being

100%

The Ordnance Survey data on the left includes an additional section of land to the front. Street Level imagery shows it to be an unmade section of roadside with a tree and a low set of railings separating it from the rest of the property. It is suitably ambiguous to be included in the OS land parcel definition and will trigger a check against the LR Title Plan.

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• Oxford• 4 bed detached• Purchase £400k• LTV 75%

4. Property Decision ‘Decline’

Decision time 7 seconds

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Case can’t proceed with this propertyCustomer can change property or challenge the decision

(with sufficient evidence)

Risk Hub Getting More Data

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Next Steps - Local Land Charges

Planning Housing Listed Building

Conditional planning consentConservation areaEnforcement noticeModification/ rectification ordersNo permitted development/ article 4Planning agreementPlanning noticeTree preservation order (TPO)

Approval under house in multiple occupation (HMO)GrantInterim certificate under HMONotice of works of repairsRight to buy/ right to acquire

Enforcement noticeListed building

Financial Light Obstruction Notice Other

No sub-categories No sub-categories Land CompensationAncient monumentsAssets of community valueCompulsory purchase orderHighway and pathsLicenceLocal actsSite of specific interest (SSSI)Smoke control orderUncommon chargesWater/ drainage

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• Improve the property data and decisioning• API to Property Risk Hub at DIP - triage• Planning Permission, Conservation Area, Listed Building Consent, Licence,

Listed Building, Advert, Conservation Area Consent, Section 106, Light Obstruction Notice, Ancient Monument

• API for full information collected at FMA• Data and risks highlighted to valuers in instructions• Liverpool test completed on c900 cases – what percentage were we told

about?• Conveyancer provided more information • More checks done in Property Risk Hub – less searches done by

conveyancer • Specialist packs including land registry info, environmental, flooding,

insurability, listed buildings• The ability to add data; monitor and visualise the portfolio is key to

managing our chosen approaches to climate change and transitional risks.

Next Steps - Local Land Charges

Nationwide 100k Sample Cases – Ground Hazards

Fail 0.16%

Condition 14.84%

Pass 85%

Nationwide Sample Cases

Fail 161 Sites - 0.16%

94 Sites considered a high risk from historical coal mining activity. New Damage Assessment procedure required

52 sites failed due to severe vulnerability of ongoing clay subsidence (TPOs and/or Underpinning)

2 Sites failed due to extreme risk of collapse and/or structural deformation

14 Sites failed due to hazards unlikely to have been identified during legal due diligence

Nationwide Sample Cases

Nationwide Sample Cases

Condition 15102 Sites - 15.10%

9588 Sites at an increased risk of ongoing clay subsidence damage. Relevant insurance required.

2775 Sites likely to have experienced historical ground deformation. Survey required to assess damages/ongoing financial liability.

1008 Sites require a passed Ground Report for conveyancing purposes. In locations like Cornwall and Cheshire.

Nationwide Sample Cases

Risk Hub Energy and Climate Monitoring

Climate Change

• Lender impact• Bank of England require Lenders to model against

various climate change scenariosa) Orderly - In line with the Paris Agreement b) Disorderly - sudden transition, ensuing from rapid

global action and policies c) BAU – Failed future improvements in climate

policy, reaching a temperature increase in excess of 4°C Review impact on back book

• Review origination processes – Risk Hub • Lenders penalised for non compliant properties?

Climate Change

A few facts to chew on:• Government targets and commitments:

• Zero greenhouse emissions by 2050• Need to achieve 100% decarbonisation of non-resi and 80%

resi• Increase EPC boundaries as a mechanism to achieve change• EPC ‘C’ rating for resi by 2030/5• Phase out fossil fuels in the 2020’s• New build standards to ensure ultra efficiency and use low

carbon heating from 2025• Additional cost to build new home to B/C = c£10,100• Cost to ‘greenify’ existing home to B/C = c£30,600

What does this mean for residential property?

• Firstly – the quality of EPC assessment needs to improve!

• EPC ‘C’ rating by 2030/5• A – C (increased demand/value?)• D – G (decreased demand/value?)• Cost of works to ‘greenify’/impact on value/demand?• Government tax implications for D – G?• Exemptions – cohesive strategy neededValuers (and the market) will need to begin to take more notice of/consider/factor in the EPC rating when valuing?

Energy Performance – Bristol Example

L – SINKHOLES

EPC Rating Total %A 36 0.15B 2025 8.45C 3457 14.4D 6899 28.79E 3444 14.37F 801 3.34G 180 0.75(null) 7118 29.7TOTAL 23960

Natural Ground Hazards

Natural Ground Hazards

CONDITION (Survey)

PASSED

FAILED

South Wales Slope Stability

Natural Hazards – Sinkholes

L – SINKHOLES

Natural Hazards Erosion Modelling Over Time

L – SINKHOLES

Address (Sold December 2018) Reason Hazard Risk

ROTUNDA, LOOP ROAD, TRIMINGHAM

Will not exist in 20 years

Coastal Erosion Total loss of property

Property Bar Code

L – SINKHOLES

Property Bar Code

L – SINKHOLES

Understanding the Future – Coastal Flooding

L – SINKHOLES

New Build Risk Appetite

New Build Risk Appetite

L – SINKHOLES

New Build Risk Appetite

L – SINKHOLES

Understanding the Portfolio – Whaley Bay

L – SINKHOLES

Understanding the Portfolio – Whaley Bay

L – SINKHOLES

Risks & Opportunities

LEASEHOLDUnderstanding the ‘Ground Rent’ phenomenon:

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TENUREIt used to be easy!Now…

• Lender (NBS) criteria - New build & Second hand• What is onerous?

Starting GREscalation methodology

• Two/three tier marketsDifferent terms / different LendersExtension – Act vs NegotiationComparables

• Leasehold houses – legacy issues• Other Lease terms

Event charges / Restrictive CovenantsFREEHOLD – Estate Rent Charges/Event fees IMPACT ON VALUE – Is it marketable in the future…

Guidance For Conveyancers

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Acceptable Refer to Valuer UnacceptableTerm >85 years (NBS)

Term >85 years (TMW)

Term 55 – 85 years (NBS)

Term 70 – 85 years (TMW)

Term <55 years (NBS)

Term <70 years (TMW)Ground Rent ≤0.1% of value Ground Rent >0.1 to ≤0.5% Ground Rent >0.5%

Review period ≥10 years Review period <10 years Review period ≤5 years

Ground Rent escalation RPI or less

Ground Rent linked to value of building

Any indices greater than RPI

Event clauses for normal use e.g. changing the carpet, installing a TV aerial, etc

Anything that appears onerous

Doubling <20 years

Compounded RPI

Can be valued by normal methodology

Valuer must reflect matters above in their valuation, which may impact marketability and resale

Likely a decline, unless local market conditions support

FLATS

It used to be easy!Now…Tenure plus:• Quality of Management• Service charges• Standard of Maintenance - Common parts/Exterior• Major works• Health/Fire Safety – Cladding • Office to Residential Conversions

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Radlett, Watford

BUY TO LET It used to be easy! Now…• HMO definition• Licensing (Mandatory/Selective/Additional)

• Now impacting many Boroughs• Government vs LA definition• Room sizes

• Article 4• Fit for immediate occupation• HHSRS• Market ‘disrupters’

• HAs• PB Student accommodation• Build to Rent

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BUY TO LETNo longer an MV with a rental figure!• Rental Value as, if not more important, than the

Capital Value!Comparables/Justification

Example:Capital Value £300,000

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RENTAL VALUE LOAN AMOUNT DIFFERENCE

£1000 pcm £195,000

£1100 pcm £202,298 + £7,298

£1200 pcm £220,689 + £25,689

£1300 pcm £225,000 + £30,000

£1400 pcm £232,188 + £37,188

£1500 pcm £240,000 + £45,000

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Minimum standards!

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NEW BUILD

It used to be easy!Now…• First occupier ‘premium’• HTB• Incentives/Part Exchange• Construction (MMC)• Regeneration Schemes• Comparables - RICS Guidance• UKF (DF)• Build Quality• Brand Value• Retention Schemes• We don’t see the ‘finished article’?

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NEW BUILD INCENTIVESStandard purchase applications: All financial incentives declared in Section 7 of the UK Finance Disclosure Form (i.e. builders cashbacks, deposit paid and any other financial incentives) should be added together to calculate the total value of financial incentives.

• Where the total value of financial incentives is less than 5% of the purchase price, don’t report to us.

Where it’s more than 5%, tell us the total value and specifically state whether it’s:- More than 5% but less than or equal to 15% of the purchase price – the offer is likely to be affected and if so we’ll advise you- More than 15% of the purchase price – the case will be declined.

Equity loan applications (e.g. Help to Buy):• Builder cashback and deposit paid are unacceptable on new build equity loan applications and if declared

on the UKF DF please report to us and the case will be declined.• All other financial incentives should be added together to calculate the total value.

- Where the total value is less than 5% of the purchase price (and doesn’t include builder cashback or deposit paid), don’t report to us.

- Where the total value is more than 5% (or includes builder cashback or deposit paid) – report to us and the case will be declined.

• Please also report to us if it becomes apparent the source of deposit is not a family gift and/or from the applicants' own resources.

Non-Financial Incentives:

Only incentives for fixtures and fittings within the property will be considered by Nationwide as non-financial incentives. For example, kitchen upgrades, fitted appliances, flooring, garden landscaping etc. Anything else should be considered as a financial incentive (for example, all vouchers, vehicles, holidays etc). 53

KeyPP Purchase price

P+ New build premium

SQ Price per sq ft

HTB % Help to Buy

Persimmon Hanbury 3 bed semi-detached

Regional New Build premiums

GlasgowPP £158k P+23% SQ £163 HTB U/A

Fife PP £182k P+10%

SQ £175 HTB 61%

MiddlesbroughPP £160k P+9%

SQ £158 HTB 60%

PlymouthPP £240k P+10-15%

SQ £253 HTB 70-80%

CardiffPP £225k P+5%

SQ £237 HTB 75%

BirminghamPP £211k P+7%

SQ £232 HTB 50%

Sleaford PP £160k P+10%

SQ £168 HTB 90%

SprowstonPP £227k P+5%

SQ £273 HTB 90%

HarlowPP £350k P+10-15% SQ £632 HTB 80%

MaidstonePP £310k P+5%

SQ £337 HTB 60%

PevenseyPP £276k P+5%

SQ £287 HTB 80%

SwindonPP £260k P+10%

SQ £258 HTB 50%

With input from our Area Valuers, this slide was prepared for a recent Credit Committee meeting. The figures show how there is an increasing new build premium (P+) on properties built in the North (see Key below)

BarnsleyPP £162k P+15-19% SQ £168 HTB 75%

AndoverPP £255k P+5%

SQ £287 HTB 90%

ManchesterPP £225k P+15%

SQ £179 HTB 75%

LiverpoolPP £176k P+10%

SQ £179 HTB 75%

Cross HandsPP £137k P+10%

SQ £237 HTB 80%

EdinburghPP £258k P+10%

SQ £249 HTB 20%

Conveyancing

Who is doing the work?

or

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Conveyancing• The first part of this journey is complete with the Lender Exchange link up

between conveyancers and Nationwide• Electronic offers to conveyancers• Redefining the role of the conveyancer• More checks done in Property Risk Hub – less searches done by

conveyancer• Specialist packs including land registry info, environmental, flooding,

insurability, listed buildings• More checks on complicated issues regarding resale restrictions, lease

terms• PVQs – template to focus on what is the issue/risks associated and provide

advice• Redemption statements/COTs/Title Registration• Funds distributed centrally • Law Society review of CQS process

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Conveyancing Part 2 UpdatesSection Changes:

3.1.3 and 3.2.3 Safeguards for solicitors and licensed conveyancers4.1 Valuation of the property (Part 2 changed for Nationwide only)5.4.4 Environmental and contaminated land reports5.5.3a Planning and Building Regulations5.5.4 Restrictions affecting value or marketability (Nationwide only)5.7.1a Flying freeholds5.10.1 Restriction on use5.14.1 Lease terms and when to inform us5.14.10 Service charge matters5.14.11 Unsatisfactory lease terms and indemnity insurance (Nationwide only)5.15.2a Estate Rent Charges5.19.1 Shared equity and Shared Ownership (Nationwide only)6.4.4 Reporting incentives6.6.4 Requirements for Houses in Multiple Occupation (Nationwide only)6.7.1 New Home Warranty Schemes - updates to CRL insurance policy6.7.4 Property does not have a new home warranty scheme6.8.1 No agreement and bond for an unadopted road or sewer6.11.1 Property affected by redevelopment or road proposals6.12.1 Resale restrictions affecting the lender's security (Nationwide only)6.13.1 Improvement/repair grant which will not be discharged7.3 Consent to mortgage from all occupants aged 17 or over (TMW only)16.5.2 Contact where deed or agreement will not adversely affect lender

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Post Valaution/Offer Focus

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Post Valuation/Offer Focus

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Post Valuation/Offer Focus• Still basic errors with typing – 11 bathrooms – value of £3m

not £300k• Highest number ‘legal queries’• Assumptions when real information is provided: • Tenure• Lease term• Ground rent • Poor letters from conveyancers – not explaining or advising• Confusion around planning/safety/indemnity policies • New form to provide MI and further challenge to quality • More triage on responses which are vague

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Thanks For Listening