APRA has released the results of its surveys on the property valuation practices used by
authorised deposit-taking institutions (ADIs) and lenders mortgage insurers (LMIs) as part of their mortgage and insurance approval processes.

The main conclusion of the surveys is that there has been a movement away from the traditional reliance on a full external valuation of a property (involving an internal inspection) in favour of more
streamlined valuation methodologies, particularly by the larger ADIs.

APRA Chairman, Dr John Laker, said that these new methodologies had not been tested in a major property market downturn and they may expose lenders to increased credit risk if appropriate controls are not in place.

“Good practice, in APRA’s view, would see these new techniques limited to lower risk lending, where there is benefit to the lender in reducing valuation costs without significantly adding to risk”, he said. “In
addition, it is important that alternative methodologies have been appropriately researched and approved at senior levels, with a suitable level of subsequent back-testing.”