Residential real estate valuation and its influence on the mortgage market

The influence of real estate valuations on the mortgage market and the connection between the two elements are very clear nowadays. However, it needs to be remembered that this was not always the case in the past. Only the gradual development of our residential market and the simultaneously developing mortgage market changed the situation. There was a time when the banks did not make valuations according to our present standards. The market reality soon challenged these practices and a natural trend emerged among banks to determine the risk involved in granting mortgages more precisely, as a consequence of the volume of bad debt. This is directly connected with the value of real estate as the collateral of a mortgage. The first few signs appeared that the issue had to be treated by the banks as a higher priority. And 2008, when the market collapsed, was a significant moment. It was a very strong signal that the market required some serious changes in this respect and a different strategy regarding valuations. Some banks limited their cooperation with individual valuers and the lists of expert valuers recommended to cooperate with the banks were shortened. Some crucial educational initiatives were introduced by the Polish Bank Association and the banks themselves started investing in training sessions and improving the skills of their valuers. At the same time, in the post-crisis period the banking sector was developing its cooperation with businesses that have comprehensively prepared databases. This new approach was aimed at establishing the highest execution standards and the most effective ways possible for banks to apply valuations. And it has been continued, as new requirements are enforced, such as the supervision of the regular valuations of the real estate collateral of mortgages in the process of being paid off (the ‘S’ recommendation). Thus revaluations have become an everyday routine as a feature of constant risk monitoring. At the same time, the banks’ utilisation of real estate market databases has been adapting to encompass the ‘J’ recommendation, in particular in terms of the banks’ obligation to supply data to the databases.