The pandemic felt like a strange fever dream, and it completely changed how many of us worked. For surveyors and lenders, lockdowns and social distancing made physical property inspections difficult or even impossible. They had to pivot quickly. Desktop valuations, often supported by Automated Valuation Models (AVMs), became the go-to solution to keep transactions moving.
That was a dramatic example of how economic uncertainty can accelerate the shift toward tech-enabled valuations. But it doesn’t take a global crisis for AVMs to prove their worth.
The scale of desktop valuation adoption has reached remarkable levels across the UK mortgage market. Industry estimates suggest that 30-70% of mortgages are now being underwritten using desktop valuations in developed economies, which could equal between 204,618 and 477,441 mortgages approved by this method[1]. These numbers continue to increase and represent a massive shift from traditional valuation methods.
AVMs offer a fast, data-driven way to generate instant valuations. While their use has been growing for many reasons, we explore why they’re especially valuable for lenders during periods of economic uncertainty. With rising interest rates, the cost-of-living crisis and global trade pressures all contributing to an uncertain UK economy, it’s times like these that AVMs matter more than ever. For lenders, uncertainty always heightens the stakes, so when used appropriately, AVMs can provide real value.
Every valuation method comes with trade-offs. For lenders, physical inspections are a sound method, but they bring about costs and delays. The benefits of AVMs are that they:
For lenders, AVMs need to be part of a layered approach. They work alongside and complement traditional valuations – they don’t replace them.
Let’s look at the benefits of AVM usage in a little more detail:
AVMs provide a quick way to value properties by offering instant results, unlike in-person surveys that take time. They help lenders make faster decisions, especially in unstable economies, and are crucial for time-sensitive deals. Borrowers, used to rapid responses like Amazon’s next-day delivery, expect swift action, putting pressure on lenders.
In uncertain times, transaction volumes fluctuate, and traditional in-person property valuations may struggle to keep pace. When the property market is moving quickly, AVMs can come to the rescue. They speed up decision-making so lenders can approve or deny applications faster. In a competitive housing market, lenders must be quick, or the borrower could potentially lose the property to another buyer. Speed is a competitive advantage in a market where buyers are eager to secure loans before rates change or conditions worsen. This is also particularly pertinent for those seeking bridging finance where time is of the essence.
In-person valuations are pricey. The question must always be, “Do we really need to send someone out in person?” During times of economic uncertainty, budgets are tighter, so reducing operational costs becomes a priority. AVMs offer a cost-effective solution. Lenders can triage valuations with an AVM to cut costs. They’re great for low-risk transactions, such as remortgaging, when the loan-to-value (LTV) ratio is low, or for initial valuation estimates. Reliance on full physical surveys is reduced, but only where it is deemed appropriate.
Lenders become more risk-averse in times of uncertainty, tightening their lending criteria and carrying out more thorough assessments. AVMs offer that added reassurance and extra checkpoint, especially as portfolio risk becomes harder to manage. Property values can also change quickly in uncertain markets. AVMs allow lenders to run continuous, large-scale valuations on their entire loan portfolios. This helps underwriters focus on higher-risk cases. AVMs identify over- or undervalued assets in real-time to identify any properties at risk of falling into negative equity, which is more likely in economic downturns. Lenders can stress test using AVMs as they help prepare for worst-case financial scenarios.
AVMs are ideal for triaging cases and finding out which properties need deeper investigation by a surveyor. If economic signals are mixed, such as rising prices in one area but falling in another, desktop valuations can monitor trends and find out which properties may require the help of an in-person valuation. It’s all about using the right tool for the right scenario and ensuring that resources are allocated where risk is highest.
AVMs can flag up any discrepancies, which is essential when the market is unstable. An AVM gives lenders the chance to investigate before committing funds. In-person valuations rely heavily on human judgment, which can be biased or prone to human error. While in-person valuations are subjective, an AVM will offer consistent, objective results. It also reduces the risk of fraud from any human appraiser who could deliberately misprice.
AVMs are ideal for managing risk in larger loan books or across multiple regions. It’s easily scalable compared to in-person valuations.
During times of economic uncertainty, the accuracy of AVMs' role becomes crucial as it directly impacts lenders' willingness to use them for mortgage decisions. Oxford research suggests that if AVMs can achieve accuracy within 2% error range for the vast majority of properties, this could potentially remove half of the typical 100-day property transaction process. This accuracy threshold becomes critical for market adoption and overall property market efficiency.[1]
For mortgage-backed securities and large property portfolios, AVM accuracy enables mass appraisal capabilities that would be impossible with human valuers alone. RICS notes that with approximately 1,415 registered residential property surveying firms in the UK handling an average of 61,720 transactions per month, this would mean 43.62 valuations per firm per month without AVMs.
Our AVM accuracy data shows that 52.4% of all UK properties fall into Very High and High accuracy categories, with 47.1% in Medium accuracy. This confidence scoring directly determines whether a mortgage application proceeds through automated approval or requires manual valuation, significantly impacting processing timelines and costs.
TwentyCi’s AVMs are highly accurate - market-leading, in fact! Our AVM correctly identifies ±10% of actual prices paid for 86% of UK residential properties. Our overall median absolute percentage error is just 2.8%. Our AVM covers over 32 million UK properties, and we create a value for every single one of these 32 million properties weekly. This level of accuracy enables lenders to process decisions that previously took days in minutes, significantly accelerating mortgage approval processes.
Most AVMs only look back and tell you what happened three months ago, but with property markets constantly shifting, we built our AVM to track signals in real-time to keep valuations up-to-date and accurate. This is absolutely essential during economic uncertain times.
If you're interested in finding out more about our Automated Valuation Models, please get in touch.
[1] Andrew Baum, Luke Graham and Qizhou Xiong, Oxford Future of Real Estate Initiative. October 2021
[2] https://www.sbs.ox.ac.uk/sites/default/files/2022-03/FoRE%20AVM%202022.pdf