New Zealand’s housing and finance industry has been through an extraordinary couple of years, recording record levels of house price growth and transactions. During this period the mortgage industry has responded accordingly, stepping up and leading the world in its adoption of digital solutions.
The industry’s use of full valuations remains as strong as ever, complemented by automated valuation models (AVM), an industry partnership that has served New Zealand’s lenders for more than a decade.
In the past two years we’ve witnessed historically low interest rates and record levels of sales, which peaked at 114,601 in the 12 months to the end of May 2021, testing the banking, lending and valuation industry and AVM technology.
Now, with rates on the rise and transactions down 25% nationally, demand for property valuations will continue to be strong even during a downturn phase in the market, fewer transactions and softer prices as a wave of existing borrowers roll off their previous lower mortgage rates and onto sharply higher rates.
Here are five ways AVMs can provide support to the industry through reliable and consistent data-driven and analytical solutions in this changing environment.
This is one of the fundamental ingredients powering the digital mortgage revolution. A combination of Artificial Intelligence (AI) and Machine Learning analytic techniques, deeply integrated APIs, and advanced real time Business Intelligence determines whether a mortgage can be written on a property, with an immediate decision, or whether human valuation is required.
Speed is as essential in a falling market as it is in times of growth. As property values soften, borrowers still need faster approval times as they look for alternative mortgage providers and weigh up their best financial option. An instantaneous valuation, which is the speed at which AVMs provide a response, is invaluable in any market.
The sooner you can give a ‘yes’ to a customer the better the outcome. Customer services hangs on the power of ‘yes’ and the speed at which it is delivered.
‘Yes’ leads to loyalty, secures the application and locks them in, potentially for life. AVMs allow absolute confidence and consistency, providing a valuation a lender will accept and lend on, giving customers surety around their next move.
Saying ‘yes’ without any ‘but’s provides a better user experience due to faster decisioning profile. By optimising the relationship between confidence levels and loan to value ratios (LTV), lenders can say ‘yes’ to more borrowers while limiting any additional risk exposure.
The use of AVMs as well as other data sets provides a seamless digital origination experience for both customer-facing and back-end processes. They simplify the online application process by pre-populating forms and reducing the number of questions asked and generate relevant data and insights as soon as the property address is entered.
Other customer retention benefits include:
- The elimination of paper verification with automatic rental income assessments
- Provision of hazard and risk insights
- Property value notifications as a loan period nears completion
- Streamlining the loan ‘top up’ process by providing customers with an indicative property value within their banking app
Even as a market cools and transaction numbers decrease, the use of AVMs provides significant business efficiencies well beyond the initial lending process such as major underwriting and valuation benefits, insights into loan portfolio risks, lending concentration, market share and business improvement opportunities.
More than 99% of New Zealand residential properties, excluding vacant land, are covered by CoreLogic’s address matching capabilities.
A roadmap of continual refinements to CoreLogic’s modelling coupled with its access to high quality data sources produces higher accuracy and greater confidence in reliable valuation outcomes.
Recent upgrades to the data feed and an increase in the volume of listings has led to improved confidence around the estimates of an additional 234,000 properties, enhancing the model’s sensitivity to market changes.
This improved coverage and timeliness of data sets is made possible through strategic partnerships. As a result, CoreLogic’s AVM performed consistently above generally accepted benchmarks during the first half of 2022. Even with these improvements, continuous refinements of the model are being made using customer feedback, constant index calibration, hypothesis testing, continual optimisation and testing cycles.
The human touch
We believe in-person valuations will always have their place in the lending space. After all, these specialists contribute years of market experience when evaluating a property in a given location. Their observations and interpretations capture what data cannot.
However, given the size of the market and almost 100,000 transactions completed on average each year, smart data and AI (AVMs) play an important part for instant decisions. With the current race among banks to secure a larger slice of the digital mortgage pie, data modelling and artificial intelligence are key to deliver faster decision making.
A combination of full market valuations, and digital valuation models is the ultimate best-case scenario for banks, lenders and consumers, providing better outcomes, improved accuracy, faster turnaround times and greater efficiency.