Thesis Abstract

Abstract
The accuracy of mortgage valuation as a lending requirement is a crucial aspect of the banking industry, particularly for banks operating in Kaduna metropolis. This research aims to investigate the extent to which mortgage valuations conducted by selected banks in Kaduna metropolis align with the actual market value of the properties being used as collateral. The research will employ a mixed-methods approach, combining quantitative analysis of mortgage valuation reports with qualitative interviews with bank officials and property valuation experts. A sample of mortgage valuation reports will be selected from multiple banks in Kaduna metropolis, and the values indicated in these reports will be compared with the market values of the properties at the time of valuation. The quantitative analysis will involve statistical techniques to assess the level of accuracy in mortgage valuations, including measures such as mean differences, percentage differences, and correlation coefficients between the reported values and market values. This analysis will provide insights into the overall accuracy of mortgage valuations and identify any patterns or trends across different banks in Kaduna metropolis. In addition to the quantitative analysis, qualitative interviews will be conducted with bank officials responsible for mortgage valuations and independent property valuation experts. These interviews will focus on understanding the processes and factors involved in mortgage valuation, as well as the challenges faced by banks in ensuring accurate valuations. Insights from these interviews will complement the quantitative findings and provide a comprehensive understanding of the mortgage valuation practices in selected banks in Kaduna metropolis. The findings of this research will have implications for both banking practices and regulatory policies related to mortgage lending. By identifying the accuracy of mortgage valuations and the factors influencing them, banks can improve their risk assessment processes and make more informed lending decisions. Regulatory authorities can also use the findings to enhance guidelines and standards for mortgage valuations, thereby promoting financial stability and consumer protection in the real estate market. Overall, this research contributes to the existing literature on mortgage valuation accuracy and provides valuable insights for banks, regulators, and other stakeholders in the banking and real estate sectors in Kaduna metropolis.

Thesis Overview

1.0 INTRODUCTION

Landed property constitutes often major portions of company assets acceptable as collateral securities for corporate lending. According to Babawale et al (2013), real estate valuations are vital for financial institution, particularly banks, for no less than two reasons. First, valuations are frequently required during the underwriting or renegotiating of mortgage loan advances, where valuations ought to give a reasonable evaluation (future) market estimation of the property that will serve as collateral for loan. Second, valuations are required if the organization or bank needs an updated assessment of collateral values for outstanding loans it holds on its asset report. Moneylenders constantly require an exact appraisal of worth for every situation. This is on account of they have to realize that they can recover their credit by offering the property if the borrower defaults and they need to take ownership. The financial services authority likewise obliges lenders to guarantee that there is sufficient security for their credit by guaranteeing that the property is worth at any rate what is being loaned on it. Incidentally, the valuation additionally serves to ensure the borrower against unexpectedly borrowing more than their property is worth.
Credit transaction between financial institution and investors grew to such an extent that securities such as shares and bonds, debenture, unit trust, Treasury bill, property are required as prerequisite for advancement of capital for whatever purpose the investor may require it for, since Investment have become a driving force of future income generation to individual, corporate organization and government as well, people are so eager to invest most especially In real estate but most of the investors are either having half of what they need to invest or not having at all which will lead to borrowing from financial institution, at this junction valuation is the only determinant of fair market value of the mortgage property which will serve as security for loan.
Practically, finance sourcing is a major component of every investment programs. And the need to have tangible and sustainable collateral before capital advancement seems to be a big task to investors. Bonds, Treasury bill, shares and stocks were alternatives collateral securities required by mortgage debt provider before loan were advanced. But due to the insecurity of the collateral during default in loan payment, property is now regarded as better alternative since one of its many characteristics is hedge against inflation.
Figures acquired during valuation activities are extremely critical to thevoperationsvand businessvdealingsvofvthe clients, vwrongvopinion ofvvaluevcan bringvaboutvstrainvin businessvdealings. vForvinstance, vdifferentvbanksvhavevsufferedvloss byvgrantingvloans in excessvofvactualvvalue, vandvnumerousvorganizationvproprietorsvhavevbeen persuaded that theyvwerevmaking benefitsvin resourcesvwhile really they were running at loss. Furthermore, vnumerous werevbeing drivenvintovbusiness thatvwere seenvto bevproductive andvprofitablevwhile invfactvtheyvwere notvreasonablevor viable v (Crosby et al 1999). The issue of overvaluation and undervaluation has brought about disagreement regarding extensive measure of cash that occasionally keep running into a few avhuge numbervof Naira; itvhas alsovled tovcases ofvbankruptcy, vinvestment failuresvand grantvof loansvin excessvof collateralvvalue. This problemvhas vbeen thevcause ofvdisagreement. Therefore, thevclaimvas tovthevreliabilityvofvvaluationvfiguresvandvthevdegreevof accuracy of estimate/worth asvgivenvby the valuer hasvcome undervexamination.
1.1 STATEMENT OF PROBLEM
Because of the lack of generally accepted method which valuers apply in valuing properties for mortgage purpose in Kaduna metropolis, according to Kuye (2000), valuers sometimes increase or over value the worth of property pledged as collateral for loan, which mostly resulted in dispute between the lender and the borrower in the case of default, bankruptcy, investment failure, which make financial institution to grant loans in excess of collateral value. This mostly occurs when valuers use the cost method of valuation without making reference to the income approach”. Other errors contributing to this problem are; lack of rental evidence, lack evidence of recent transaction and wrong use of capitalization rate. To make it worse, some valuers don’t use the correct procedures of arriving at opinion of values and focus on satisfying their clients (mortgagor) demand in terms of value by demanding and accepting bribe from the mortgagor. This simply act rise a great doubt in the hearts of financial institution that requires valuation report to serve as lending requirement.
1.2 AIM AND OBJECTIVES
The aim of this study is to assess the accuracy of mortgage valuation as a lending requirement for selected banks in Kaduna Metropolis.The specific objectives are to;
i. identify the methods adopted in valuation of property for mortgage purpose,
ii. identify the causes of inaccuracy in mortgage valuation,
iii. evaluate the accuracy of mortgage valuation, and
iv. evaluate the reliability of mortgage valuations prepared by estate surveyors and valuers for mortgage institutions in Kaduna metropolis.