What is a mortgage down-valuation?
Once an offer has been accepted, a chartered surveyor is instructed by the mortgage lender to find out if the purchase price you have agreed reasonable.
A surveyor will take into account the following when valuing a property:
- look at evidence of the sale price of similar properties locally
- check the demand and supply in the area, and the current market conditions
- check the condition of the property
When a surveyor feels that the property is not worth the money you have offered, this is called a “down-valuation”.
For example, if you offer £100,000 for a property, but the surveyor thinks it is worth £90,000, the property has bee down-valued by £10,000.
What can you do about a down-valuation?
If your offer is dependant on a mortgage valuation, your finance can be affected if the property is down-valued. You have 3 options when in this position.
You can ask the seller to lower their price, meaning you will get a better deal on the property. The seller is not obliged to accept a lower offer.
You can try and appeal the down-valuation, although not all lenders will agree to this. You will need to send them evidence of local market comparables, selling within a set time-frame, to prove your case. If the survey was not very comprehensive, you can request a home-buyers report and get a second opinion. There is some risk and cost associated with doing this as you may not get a different result.
You can apply for a mortgage with another lender. Different lenders use different criteria, so you may be able to get another survey, which may value-up (ie. be worth the money you have offered). Bear in mind though, you will need to pay for another mortgage valuation, and not everyone is happy to take that risk.
If you are taking out a mortgage, then the lender’s valuation will nearly always have the final say.
The debate around down-valuation
There is always a fierce debate running between UK estate agents and the mortgage lenders about down-valuation. The debate has recently flared again with one leading agent claiming that surveyors are just “covering their backs.”
Emoov’s chief executive, Russell Quirk, has recently said: “Surveyors are prophesying a [financial] crash. The system is built to protect them” adding that they are “covering their backs” in case the market turns down.
“Surveyors unfortunately have a bit of a vested interest. If the media are reporting about the market softening somewhat surveyors become concerned about their indemnity policies which are called in and of course are called upon by lenders if there’s an issue with the property market.
My contention is that the market is very very sound indeed…the statistics say that – whether it’s Halifax, Nationwide, RICS, Hometrack.
Prices are firm so there’s absolutely no need for surveyors to be downvaluing properties” insists Quirk.
He has gone on to mention that one in five sales have been hit by down-valuations, when two years ago, it was one in twenty.
Meanwhile the banking industry umbrella group UK Finance have told the BBC: “Lenders have a responsibility to ensure that the value of property taken as security on mortgage loans is current and realistic.
Although the valuation is carried out for the lender, borrowers also benefit from a realistic independent valuation as it will help them avoid paying over the odds for the property they are buying.”
What do you think?
If you are thinking of coming to the market in the next few months, check out our blog on how to sell your home quickly.
You can also read up on which questions you should be asking the estate agents at valuation stage.
Coppenwall Estate Agents from Rossendale.