Hope Value- What is it and why do some lenders not want a valuer to take it into account?

Video Transcript

Hope value refers to the additional worth attributed to a property based on the expectation of a more valuable future use or development beyond its current permitted use. This concept is particularly relevant when there’s a possibility of obtaining planning permission for a more lucrative development, such as converting agricultural land into residential or commercial use. Lenders often prefer that property valuations exclude hope value for several reasons. Firstly, risk management. Hope value is speculative and depends on uncertain future events like securing planning permission. Including it can inflate property values, leading lenders to base loan amounts on potentially unrealistic valuations, therefore increasing their financial risk. Secondly, market volatility. The property market can be unpredictable and anticipated developments may not materialise as expected. By excluding hope value, lenders ensure that valuations reflect the property’s current tangible worth, providing a more stable basis for lending decisions. And finally, consistency in valuations. Excluding hope value promotes uniformity in property assessments, as valuers might have differing opinions on the likelihood and impact of future developments. This consistency aids lenders in making more reliable comparisons and decisions. In summary, while hope value can represent potential future gains, lenders typically prefer valuations that reflect the property’s existing use value and mitigate risks and maintain financial prudence.