Estonian government to eliminate appraisal requirement for home loans
The government intends to eliminate the property appraisal requirement for home loan applications, allowing banks to conduct their own valuations using statistical models. Both banks and appraisers, however, warn the planned change carries significant risks.
The government wants to scrap the required appraisal for collateral in an effort to reduce bureaucracy and save home loan applicants hundreds of euros.
Prime Minister Kristen Michal (Reform) believes that both buyers and banks will benefit from the change.
"This is mutually beneficial: the client saves time, they don't have to request the appraisal, don't have to fulfill this formality, don't have to look for an appraiser, and the bank can actually make lending decisions faster, more automatically and more conveniently," Michal explained. "Well — in a more modern way, based on statistical mathematical models."
Following this change, banks would be able to conduct property valuations using statistical models. Swedbank mortgage area manager Anne Pärgma, however, doubts whether banks have sufficient data for this.
"An expert appraisal and report contains information about the property that has been collected from registries," Pärgma noted. "It also includes necessary data about similar properties. So, if we're evaluating a property in Tallinn, are there enough similar transactions in that building or that neighborhood to draw conclusions from?"
She does not believe it's possible to determine a property's value based on statistics alone.
Property appraisers themselves are also critical of the plan. That is no wonder either — if the bill in question is passed as it currently stands, demand for their services will decrease.
"If this ends up being extended to apply to first-time loan applications too, then as appraisers we see a major risk in using this model," warned Estonian Association of Appraisers (EKHÜ) vice chair Hanna Raudmäe, adding that databases aren't yet advanced enough to provide this information in the necessary format.
"Especially if we consider that we're going to save money by skipping the expert appraisal, the real damage to consumers could end up being significantly greater in the future than the cost of one appraisal," she explained. "[An appraisal] could reveal illegal renovations, or documentation not matching registry records, which could come back to haunt the consumer down the line."
The bill regarding the change is currently undergoing a consultation period, and is awaiting feedback from stakeholders.
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Editor: Johanna Alvin, Aili Vahtla
