AVM bridging loans: the benefits and limitations

What is an AVM?

AVM stands for Automated Valuation Model. Put simply, an AVM is a type of property valuation report that is created by specialist software using online data. AVM reports are increasingly being used as an alternative to the traditional RICS Red Book valuation.

What are the benefits of using an AVM?

There are two main benefits to borrowers of AVM bridging loans:

Speed: an AVM is significantly quicker than a traditional property valuation because it does not require a valuer to access the property and write up a report. An AVM valuation can be obtained in a few hours compared to one or two weeks for a traditional valuation.

Price: an AVM is also considerably cheaper than a traditional property valuation. Each case is different as each property, valuer and lender combination is different, but a ballpark is 10 times cheaper.

Therefore, AVMs are particularly useful in situations where a quick completion is essential and up-front cash is limited. AVMs are common in auction purchases for this reason, as buyers have to complete within 28 days of the auction or lose their 10% deposit.

What are the limitations to AVMs for bridging loans?

Lenders usually permit smaller maximum loan sizes and lower loan to value (LTV) levels under their AVM products compared to their standard bridging products. These limitations are purely due to the fact that AVMs are not as robust as traditional valuations and therefore open the lenders to greater risk.

At Funding 365 we can deliver loans up to £1 million using an AVM, with LTVs capped at 55% for refinances, 65% for open market purchases and 75% for open market purchases where the borrower will refurbish the property using their own funds. View our AVM Bridge product guide here.

When can you not use an AVM?

AVMs are currently possible for residential properties only. Additionally, some residential properties are not suitable for an AVM as they do not have enough comparable data and therefore won’t attain a high enough confidence level.

What is a confidence level?

Each AVM report is given a confidence level score based on the report’s likely accuracy. Funding 365 will typically only lend against properties using an AVM with a Hometrack confidence level of 5 or above. Highly unusual properties and remote properties with few other buildings nearby are unlikely to have enough comparable data online to attain this level of confidence.

In summary

An AVM is an Automated Valuation Model, an online tool that lenders use to value residential properties. AVMs save borrowers time and money compared to traditional valuations and are therefore often used for bridging loans when the borrower needs a quick purchase and / or a lower up-front cost.

If you have any further questions about AVMs you can speak directly to a Funding 365 underwriter on 0800 689 0650 or underwriting@funding-365.com or via the chat function on this website.

Funding 365 currently uses Hometrack to compile our AVM reports. Find out more about Hometrack here.