Property 101: APRA revisions to Prudential Practice Guide APG 223 Residential mortgage lending
The Australian Prudential Regulation Authority (APRA) has released for consultation revisions to Prudential Practice Guide APG 223 Residential mortgage lending to incorporate measures either announced by APRA in December 2014 or communicated to authorised deposit-taking institutions (ADIs) since.
APRA’s proposal to increase the monitoring of risk and lending practices should ensure the highest professional standards and independence of the valuation process for residential mortgages, according to the leading valuation professional bodies, the Australian Property Institute (API) and the Royal Institution of Chartered Surveyors (RICS).
The market expects that valuations are reliable, independent and authoritative.
Both the API and RICS accredit professionals and require them to follow International Valuation Standards in the preparation of valuation advice to Authorised Deposit-taking Institutes (ADIs).
We call on APRA to ensure that any changes made to valuation practices are not inconsistent with international standards.
The two organisations share a strong preference for a full on-site valuation, which includes a physical inspection and all relevant enquiries being undertaken.
A physical inspection is considered a must and should be sufficiently comprehensive to enable valuer to complete their report in accordance with accepted valuation practice.
Lesser forms of value assessments such as a ‘drive-by’ which has an external inspection only and with very limited enquiries or a ‘Desktop Assessment’ which has no physical inspection, no formal enquiries and limited reporting carry greater risk and should only be adopted in very low-risk circumstances.
We also support the proposal confirming that the ADI’s risk management teams, rather than the procurement or panel management staff, should make determinations regarding risk management and the appointment of suitably qualified, professional and accredited valuers.
The API and RICS work closely with the finance industry, which requires that their Panels are comprised of API and RICS qualified valuer members.
The API and RICS are supportive of all measures, which enshrine the independence of the valuer in the residential mortgage process and the valuation process generally.
Additionally, sound risk management practices by the banks will assist in ensuring that valuations are undertaken in accordance with both International and Australian valuation standards, as prescribed by both the API and RICS.