Prudent Value: The New Radical Basis of Valuation for Mortgage Loan Purposes

Last year, the European Parliament enacted a revised Capital Requirements Regulation, imposing, inter alia, a new valuation regime for mortgage valuations, effective January 1, 2025. From now on, the dominant basis of value is referred to as property value (Article 4, 74a), which means the value of immovable property determined in accordance with Article 229(1).

In accordance with Article 229(1), the valuation of immovable property shall be appraised independently of an institution’s mortgage acquisition, loan processing, and loan decision process by an independent valuer who possesses the necessary qualifications, ability, and experience to perform the valuation.

Furthermore, the value should be appraised using prudently conservative valuation criteria, excluding expectations of price increases. Additionally, the value should be adjusted to account for the potential that the current market value may be significantly higher than the value sustainable over the life of the loan. Such a value must not exceed the market value.

This new basis of value represents a significant departure from the decades-long reliance on spot market value. It will require qualified independent valuers to fully utilize their predictive skills, experience, and market knowledge.

How this new valuation regime will be implemented is still under discussion among lending institutions and the valuation profession, with many banks favoring in-house property valuation, while others prefer to instruct third-party valuers.

Experts at PRAXI Valuations, comprising top valuers from 15 countries across Europe, is now well prepared to take on the challenges presented by this new valuation regime.

Connect with our experts today and stay ahead of the curve:

Maurizio Negri
Network Director
maurizio.negri@praxi.praxi

Chris Grzesik
Senior Advisor & International Development
chris.grzesik@praxivaluations.praxi 

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