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Influences on Secured Lending Property Valuations in the UK

Author

Listed:
  • Neil Crosby

    (Department of Real Estate & Planning, University of Reading Business School)

  • Cathy Hughes

    (Department of Real Estate & Planning, University of Reading Business School)

  • John Murdoch

    (School of Law, University of Reading)

Abstract

A significant part of bank lending in the UK is secured on commercial property and valuations play an important part in this process. They are an integral part of risk management within the banking sector. It is therefore important that valuations are independent and objective and are used properly to ensure that secured lending is soundly based from the perspective of both lender and borrower. The purpose of this research is to examine objectivity and transparency in the valuation process for bank lending and to identify any influences which may undermine the process. A detailed analysis of 31 valuation negligence cases has been followed by two focus groups of lenders and valuers and also questionnaire surveys of commercial lenders and valuers. Many stakeholders exist, for example lenders, borrowers and brokers, who are able to influence the process in various ways. The strongest evidence of overt influence in the process comes from the method of valuer selection with borrowers and brokers seen to be heavily involved. There is some also some evidence of influence during the draft valuation process. A significant minority of valuers feel that inappropriate pressure is applied by borrowers and brokers yet there is no apparent part of the process that leads to this. The panel system employed by lenders is found to be a significant part of the system and merits further examination. The pressure felt by valuers needs more investigation along with the question of if and how the process could dispel such feelings. This is seen as particularly important in the context of bank regulation.

Suggested Citation

  • Neil Crosby & Cathy Hughes & John Murdoch, 2004. "Influences on Secured Lending Property Valuations in the UK," Real Estate & Planning Working Papers rep-wp2004-04, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:repxwp:rep-wp2004-04
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    File URL: http://www.reading.ac.uk/LM/LM/fulltxt/0404.pdf
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    References listed on IDEAS

    as
    1. Neil Crosby & Anthony Lavers & Henry Foster, 1998. "Commercial property loan valuations in the UK: implications of current trends in valuation practice and legal liability," Journal of Property Research, Taylor & Francis Journals, vol. 15(3), pages 183-209, January.
    2. Julian Diaz III & Paul Gallimore & Deborah Levy, 2002. "Residential valuation behaviour in the United States, the United Kingdom and New Zealand," Journal of Property Research, Taylor & Francis Journals, vol. 19(4), pages 313-326.
    3. Timothy M. Havard, 2001. "An experimental evaluation of the effect of data presentation on heuristic bias in commercial valuation," Journal of Property Research, Taylor & Francis Journals, vol. 18(1), pages 51-67.
    4. Paul Gallimore & Marvin Wolverton, 2000. "The objective in valuation: a study of the influence of client feedback," Journal of Property Research, Taylor & Francis Journals, vol. 17(1), pages 47-57, January.
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    Cited by:

    1. Ewa Kucharska-Stasiak, 2023. "Wartość długoterminowa versus wartość rynkowa jako podstawa zabezpieczenia wierzytelności w sektorze bankowym," Bank i Kredyt, Narodowy Bank Polski, vol. 54(1), pages 1-24.
    2. Krzysztof Olszewski, 2012. "The impact of commercial real estate on the financial sector, its tracking by central banks and some recommendations for the macro-financial stability policy of central banks," NBP Working Papers 132, Narodowy Bank Polski.
    3. Agnieszka Małkowska & Małgorzata Uhruska & Mateusz Tomal, 2019. "Age and Experience versus Susceptibility to Client Pressure among Property Valuation Professionals—Implications for Rethinking Institutional Framework," Sustainability, MDPI, vol. 11(23), pages 1-23, November.
    4. Neil Crosby & Steven Devaney & Colin Lizieri & Patrick McAllister, 2018. "Can Institutional Investors Bias Real Estate Portfolio Appraisals? Evidence from the Market Downturn," Journal of Business Ethics, Springer, vol. 147(3), pages 651-667, February.
    5. Neil Crosby & Colin Lizieri & Patrick McAllister, 2010. "Means, motive and opportunity? Disentangling client influence on performance measurement appraisals," Journal of Property Research, Taylor & Francis Journals, vol. 27(2), pages 181-201, April.
    6. Augustyniak, Hanna & Łaszek, Jacek & Olszewski, Krzysztof & Waszczuk, Joanna, 2012. "Cykle na rynku nieruchomości mieszkaniowych i komercyjnych, ryzyko dla inwestora oraz potrzeba adekwatnej i ostrożnej wyceny [Cycles on the housing and commercial real estate market, risks and the ," MPRA Paper 41070, University Library of Munich, Germany.
    7. Krzysztof Olszewski, 2013. "The Commercial Real Estate Market, Central Bank Monitoring and Macroprudential Policy," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 5(2), pages 213-250, December.

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