Everything is cosy – the buyer and seller of the property agree on the price – and things are moving forward smoothly until the house is down valued by the lender. The surveyor who conducts a valuation on behalf of the mortgage lender decides that the property is worth less than the original agreed price. This may appear to be good news for the buyer. However, the mortgage lender may not agree to provide the buyer with the cash. It could end up with the transaction falling through.
Records have shown that one out of every 30 properties is being devalued. This is happening all over the country, though some areas have shown a higher proportion of down valuations. As the Sittingbourne letting agents in South East England will agree, the number of properties being down valued is increasing.
While a property surveyor examines in depth the structural aspects of the building, such as size, condition, layout, design, age, fixtures and fittings, a mortgage valuer’s survey is on behalf of the lender and just to check whether the property is worth the price agreed upon. The information is given to the Bank or lender and it is for them to decide whether or not the requested mortgage amount is feasible.
Mortgage lenders usually employ a RICS (Royal Institute of Chartered Surveyors) valuer to conduct the survey. The market value is generally based on
- the present condition of the property
- completed sales in the recent past of similar buildings in the area
- knowledge of the local property market.
The lenders’ main objective is to protect their loans. In case they have to repossess the property, they will need a fast sale and probably at a cheaper rate. If the property was sold at a higher rate than the market value, they will lose out by selling at a lower price and trying to get repayment of the balance from the buyer.
If repairs are needed to the property, the mortgage value given will not be the highest. Some of the conditions that may affect the valuation are:
- Subsidence: the gradual caving in or sinking of a property’s foundation. As one expert puts it, “Shallow foundations, clay sub-soil, tree roots and dry weather are a combination that can make subsidence a real danger for properties.”
- Dampness: Rising damp – moisture rising from the ground into the walls can cause considerable damage.
- Masonry: In older properties, part concrete builds are sometimes found.
In such instances, the mortgage lender will compare how much the property would be worth in a good condition with the value in its present condition.
Recently, with the rising house prices, some sellers have become ambitious and tried to overprice their houses. This has led to an increase in down valuations by lenders. Another cause for such down valuations is the “race for space”. The pandemic set a new trend with people looking for larger accommodation with outdoor space. The scene became competitive, with so many people wanting to buy their dream homes. Some sellers took advantage and raised prices while some buyers were equally willing to pay more to achieve their dream.
Some authorities feel that the cause for so much down valuing by lenders is that there is insufficient sold price data for properties due to the delay in completed sales being recorded at the Land Registry. Mortgage valuers work from completed sale prices, not on independent property surveyors’ valuations. Quoting one authority, “When we see a short, sharp rise in house prices – as we have from the impact of the stamp duty holiday – it means there just aren’t suitable, comparable properties in that area to corroborate the higher price sellers are asking for, hence the down valuation.” The Director of a mortgage broker company stated, “The market is so busy and a lot of people are paying over the asking price, plus the sold price takes so long to make its way on to Land Registry records.” https://www.estateagenttoday.co.uk/breaking-news/2022/5/one-in-30-homes-are-being-downvalued-by-lenders–claim
Conclusion: While down valuations can sometimes cause a transaction to fall through, there are also some positives. For a buyer, it can prevent him/her from buying a house at a price higher than its actual value. The buyer can then negotiate with the seller for a lower price or have the property valued by another surveyor or lender. A seller can consider either accepting the price or looking for a new buyer through a different lender with the hope that the valuation will go through at the agreed price. As long as the property market keeps prospering, with the imbalance in supply against demand, down valuations are also expected to continue.