Why has my property been ‘Down-valued’ and what can I do?
A down-valuation is when a mortgage lender’s surveyor values a property lower than the current owner or buyer expects it to be valued at. This can happen when buying a property or trying to remortgage a property already owned.
The mortgage lender will want to ensure the property is valued accurately in order to protect them from financial loss in the event that you are unable to keep up with your mortgage payments and they are forced to repossess the property.
A valuation could either be done in person by a qualified surveyor, remotely by a qualified surveyor or using automated valuation model (AVM) which doesn’t involve someone physically inspecting the property.
A down-valuation is more common when it comes to homeowners remortgaging their existing home and putting in a hopeful valuation estimate of what they believe to be accurate. However, since the Covid-19 pandemic it is becoming increasingly more common with people buying a new home.
Down valuations usually happen when either there is a shortage of supply, with potential buyers offering more than a property is worth in order to secure it or when house prices are out of sync with current market trends. Surveyors will often use comparable evidence and if house prices are rising or falling at a faster rate than they are in other areas, or transaction levels aren’t what they once were, there can be a gap between what an estate agent, owner or buyer believe a property is worth and the surveyor’s opinion of its market value.
You may have multiple options available to you in this situation. Here’s an example based on purchasing a property:
You agree to purchase a property for £300,000 using a 10% deposit (£30,000).
You apply for a 90% mortgage of £270,000.
The lender values the property at £280,000, not £300,000.
So now the lender will only lend 90% of £280,000 (which is £252,000) rather than the original £270,000 you applied for.
Here are your options:
- Go back to the estate agent and seller of the property and renegotiate the purchase price to reflect the mortgage valuation. If the seller is willing to renegotiate with you this could be a plus, as you will now buy the property you have fallen in love with for less than previously agreed.
- If the seller cannot drop the price all the way to £280,000 you could meet in the middle at £290,000 and you would need to make up the £10,000 difference with an increased deposit. This would take your deposit to £40,000 and require a mortgage of £250,000
- If you have the funds, and you are happy to do so you could still pay the full £300,000 purchase price by increasing your deposit further to £48,000 and using the maximum mortgage of £252,000.
- If you don’t have the funds to increase your deposit to bridge the gap and the seller still wants the full original purchase price, you could:
- Ask the current lender if they would consider lending you more than 90% of the valuation. This will vary from lender to lender and if they are willing to offer you more than 90% then the interest rate will usually be higher so your mortgage costs will be too. If the lender will go up to 95% of the valuation in this example they would lend £266,000 and you’d need to increase your deposit to £34,000.
- Reapply with a different lender. Another lender may use a different surveyor who takes a more favourable view on the property price, meaning you can proceed as originally intended. This will involve your mortgage broker applying with another lender and getting a 2nd opinion on the valuation. If the second surveyor also down-values the property then this could give you more evidence to support re-negotiating the purchase price.
- If you have tried all of the above, the seller won’t renegotiate, you don’t have the funds to bridge the price gap and numerous valuers have valued the property lower than agreed, you may need to withdraw from the purchase and start looking again.
In the case of a remortgage, your mortgage adviser should be able to explain your options. As always, our team at Mortgage Medics are here to help with any questions.
If this has got you thinking, we’d be delighted to help. Get in touch and we’ll talk you through your options, or sign up to our monthly newsletter, to keep your finger on the pulse.
Undray Griffith – 24th November 2022