THE MORTGAGE VALUATION DILEMMA

Abstract

Writing in 1965 the building society historian E.J. Cleary drew attention to the cyclical nature of crises within the mortgage business and predicted that the next crises would occur in the 1980's. It may be argued that a crisis occurred which was aggravated rather than addressed by the Building Society Act of 1986. This crisis is in the statutory provision for the valuation of property offered as security against a mortgage loan. Cleary demonstrated how these were introduced in response to fraud on lending institutions and the primary purpose of these measures was to protect the building society investor against misrepresentation of values, often made by directors and staff of the societies, or with their collusion. Due to subsequent legal and commercial developments the valuer's duty of care has been extended, culminating in recent High Court decisions which confirm that a valuer may owe a duty of care to both lender and borrower. These decisions may suggest a legal trend towards stricter liability together with the redristribution of risk among participants in the mortgage transaction. Whilst the crisis has affected independent valuation firms employed by the mortgage lenders and now affects lenders more directly due to their increasing employment of staff valuers, these market participants may be unable to offer a satisfactory remedy themselves. It may be argued that the response of the lending institutions and the valuation profession to these developments has further obscured the original purpose of obtaining a mortgage valuation and that this purpose must be redefined by legislation.