The housing market has sailed into unchartered territory.
Some reports suggest that prices are stable, others suggest falling – and a few suggest that, in some places at least, they are still edging up.
The true picture may be that we are certainly no longer in an endless upturn for house prices, but we are not in the collapse predicted by some industry observers either.
But what does this mean if you want to buy a house? In some case, it can mean a down valuation, and a sale that falls through because of it.
What is a down valuation?
Surveyors assess the market value of a property as part of any mortgage application. This is so the lender knows that the property they may potentially lend against is worth the money – and that if the buyer defaults on repayments, the lender may potentially repossess the property and sell it to recover their losses.
Down valuations occur when a surveyor disagrees with a buyer’s and seller’s view of what a property is worth, and values it at a lower figure. The difference can be tens of thousands of pounds.
It is this, rather than the buyer’s opinion, that the lender uses for their decision making. A down valuation can mean that the lender will not lend the full amount, or not lend at all.
Lenders want to protect themselves – and to an extent buyers – from negative equity, when the property’s value is less than the remaining mortgage balance. If the valuer believes the property is overpriced and the potential buyer is offering more than it is worth, they may provide an alternative, lower valuation.
Surveyors may have started to down value homes in some parts of the country, where the market looks the least stable.
What is the problem for buyers and sellers?
When a would-be homebuyer finds that their potential new home has been down valued, it means that the lender will simply refuse to grant a mortgage for the agreed purchase price.
The buyer is in a position where they potentially must then find tens of thousands of pounds to fill the gap or risk losing their dream home. At the same time, sellers are left powerless as buyers who are lacking the funds they need – pull out and chains collapse.
In the recent past, there may be an assumption that some parties may have been guilty of over valuing property, confident that a buoyant market would prove their optimism correct. The increased number of down valuations appears to be letting some of the air out of the property bubble.
What can you do about a down valuation?
If you are buying a home and you need a mortgage, then a down valuation is a problem. It means that even if you’re prepared to pay over the odds for your dream home, your lender isn’t.
You will have to either:
- Find more cash. You might be able to make up the difference between your offer and what the valuer believes the home is worth, but this could be impractical if you are already stretching your finances.
- Challenge the valuation. In theory, you can challenge a valuation, but this rarely succeeds. A valuer is unlikely to admit they are wrong.
- Try a higher Loan-To-Value (LTV). You could try and get the lender to agree to lend with a higher LTV. This will mean higher repayments, and the lender may still believe the property is not worth the price.
- Re-negotiate your offer. If a professional valuer says a property is only worth a certain amount, why pay more? The seller, however, may not agree, and simply put the house back on the market.
Get some expert help
There may be a better solution. A different lender might accept a higher valuation. At Continuum we work with all the lenders on the market. When there is a problem such as a down valuation, we can often find an alternative provider who might take a more flexible approach.
If you have worries about a valuation, or about getting the most appropriate deal for your next home, call us today.
The information contained in this article is based on the opinion of Continuum and does not constitute a recommendation to suitable mortgage strategy or products, you should seek independent financial advice before embarking on any course of action.
Your home may be repossessed if you do not keep up repayments on your mortgage.