A rational assessment procedure of long-term sustainable values for bank lending purposes

Abstract

Even if the mortgage lending value is not included among the bases of valuation recognized by the International Valuation Standards, the consequences of the global financial crisis have pointed out the peremptoriness for the banking institutions to adopt, in the transactions that involve properties as credit exposure guarantees, sustainable value judgments in the long term. In the present work, with reference to the Italian context, a rational method for estimating the mortgage lending value is proposed and tested. By borrowing the operating logic of the Value at Risk and introducing appropriate assumptions, the model is based on a time series analysis of the property values recorded in the Italian regional capitals, and assesses the abatement coefficients of the market value according to the location of the urban area (central, semi-central or peripheral) of the property. The coefficients obtained satisfy the need for a rational assessment of the property risk and for an appropriate spatial contextualization of the risk components as regards the local demand and supply.