An increase in demand from buyers wanting more space both inside and out as a result of lockdown, coupled with the stamp duty holiday, has led to a rise in purchase house prices. Various indices, from Halifax and Nationwide to the Land Registry, reveal house prices continuing to climb.
However, not all surveyors are convinced that all properties are worth what someone is prepared to pay for them. A growing number of borrowers applying for mortgages are seeing down valuations, where the surveyor instructed by the lender to value the property reports back that it is not worth what the buyer wants to borrow. This can result in the deal falling through unless the buyer can make up the difference between the valuation and purchase price from savings, or manages to negotiate a lower sale price with the seller.
Down valuations can also occur during remortgaging. The lender may feel that the property is not worth enough for the borrower to access a market-leading two-year fix, for example, because the loan-to-value (LTV) is too high. This may result in the borrower paying a higher mortgage rate or not being able to remortgage onto a fixed or tracker deal at all if their LTV is too high. This could result in reverting to the standard variable rate, which is much higher.
Some borrowers purchase who have spent a significant amount of money renovating their property may have expected it to increase in value in line with their outlay. Some may be over-optimistic on their valuation or have spent too much on renovations, plus value’s are also being more cautious because of current economic conditions.
What can borrowers do if they get a significant down valuation? You can try appealing to the surveyor/lender to review the decision by gathering evidence in the form of comparable. If properties nearby have sold for significantly more than your property has been valued at. You could try arguing that your property is worth more. For this to work though you need to be realistic – is that property much better/bigger/modern than yours?
If the surveyor won’t budge, another option is to switch to another lender and try again. However, with processing times taking much longer than usual. Due to increased demand and staff working from home, it could add weeks to your purchase. There is also no guarantee that another surveyor will give a higher valuation.
It is also worth considering whether you want to pay significantly over the odds for a property. Even if you can make up the shortfall yourself. If you are planning on staying in the property for many years, then paying say, 20 per cent more than. It is said to be worth, may not matter. But if there is a chance you will be moving on in say five years. You might want to think twice or there is a possibility that you could find yourself in negative equity.