Having a property down valued by a lender can cause major issues for both buyers and sellers, as well as those looking to remortgage.
According to figures from online mortgage broker Mojo Mortgages, the rate of down valuations on purchases has doubled since before the pandemic and continues to rise despite a slowdown in the last few months.
The rate of down valuations on purchases was 12.8% in April 2022, down slightly on a high of 14% in November 2021.
The equivalent rate for remortgages has continued to fall over recent months, but remains much higher than for purchase mortgages, standing at 15.4% in April 2022.
What are down valuations?
A down valuation is where the buyer or remortgage applicant’s mortgage lender values the property for less than the agreed selling price, and is unwilling to lend the full amount as a result of the increased risk.
For example, if a buyer has agreed a purchase price of £200,000, but the mortgage valuation is at £180,000, this would be a down-valuation of £20,000.
What’s driving the high rate of down valuations?
Richard Hayes, co-founder and CEO of Mojo Mortgages, said: “Devaluations are sometimes seen as a precursor to a price crash, and this fuels headlines, but our data is not showing this to be the case. It is more likely to be people trying to take advantage of a buoyant market and not quite getting it right. The property market has seen unprecedented demand over the last couple of years, with month after month of record price rises. This level of demand means that, in my opinion, some sellers are trying their luck and setting a selling price higher than estate agents recommend. With some properties, like three-bed homes, in such high demand, sellers are trying to see what they can achieve. With supply of new homes onto the market still well below demand, buyers are also willing to pay more for a property because of the lack of similar alternatives. For those who are remortgaging, it seems that some are simply trying to access a bigger nest egg than they actually own to give them more cash in the bank or to access lower interest rates by having a better loan to value ratio on a new mortgage. This may work for some, but they have to be prepared to be down valued if they are overly ambitious with their valuation.”
What can I do if my property is down valued?
In such a competitive market, being down valued can mean that buyers miss out on their dream home, sellers are forced to pull out of their own purchase, and homeowners face higher interest rates on their new mortgage.
Now Richard has revealed his expert advice for how mortgage applicants can avoid being down valued.
Negotiate a new price
“If your seller has already found another property, they may be more willing to negotiate so they can move forward with their own purchase.
“Being able to show evidence of similar sale prices in the area could also help to encourage a seller to lower their asking price.”
Find a new lender
“Not all lenders use the same approach to valuations and a different surveyor may value the property at a higher price.”
Increase the size of your deposit or LTV
“Although your initial mortgage application may have been rejected after a down valuation, you could still work with the lender to find a solution. Working with a mortgage broker can help you to understand all of the options available.
“Bridging the gap between your agreed price and the lender’s valuation by increasing the deposit is one option, but buyers could also negotiate a higher loan-to-value mortgage, although this would result in a higher interest rate.”
Challenge the valuation
“Only some lenders allow appeals on the valuation decision. If you are to be successful, you will need compelling evidence about the sale of similar properties in your area.
“The pandemic meant most lenders used desktop valuations, and if the surveyor hasn’t viewed the property in-person, they may not be aware of home improvements or changes that have been made. If this is the case, you may be able to ask the surveyor to visit the property in-person to re-evaluate.”
