A growing number of properties are being down valued during the sale process amid an environment of rising interest rates and inflation. 

As the majority of buyers require a mortgage to purchase a property, lenders are becoming increasingly cautious when it comes to valuations, in case borrowers are unable to meet repayments as their costs rise. 

More than 866,000 homes were down valued between January 2020 and January 2022, according to property investment company HBB Solutions. Last year just over a quarter of the 1.4m properties sold in the UK were down valued, according to estate agent Benham & Reeves.

A down valuation occurs when your mortgage lender values the property you’re intending to buy at a lower value than the agreed price. 

Here, we explain why some properties are being down valued and what can you do if it happens to you during the buying or selling process.

Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.

If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,000 reviews.

Why are properties being down valued?

A property may be down valued is if a seller, or their estate agent, is too ambitious with their asking price, or if there’s something wrong with the property.

At times of rising inflation, interest, and house prices, selling prices are pushed up to levels that some lenders might see as unrealistic. When this happens, the lender’s surveyor may decide that a property isn’t worth what the buyer is paying and place the valuation below the agreed price.

With inflation and interest rates currently soaring and a buoyant property market, this could go some way to explaining why we are seeing rising numbers of properties being down valued. Lenders are likely to more cautious at the moment and down value properties rather than saddling themselves with loans that may not be repaid.

Are some properties more likely to be down valued than others?

Some types of property in certain locations may be more likely to be down valued than others. 

People looking to buy in Wales in 2020, for example, faced a higher chance of having their property down valued, with 63% of properties being valued less than the asking price. This was closely followed by Greater London, where 59% of properties were down valued, according to online mortgage comparison site Bank Rate.

When it comes to types of property, the type that was most frequently down valued in 2020 were cottages. More than six out of 10 (66%) of those sold were down valued, followed by semi-detached properties at 48%.

There’s no single reason for down valuation, however, generally, areas that have seen rapid increases in house prices could be more likely to see higher numbers of properties being down valued. For example, searches and demand for properties in the countryside skyrocketed following lockdown, which could go some way to explaining the number of cottages being down valued.

What can you do if your property is down valued?

Down valuations affect both the buyer and the seller. If your lender reduces the value of the property you’re buying, then it may reduce the amount it’s willing to lend you, and leave you unable to go ahead with the purchase. As a seller, you may risk losing your buyer if your property is down valued. Whether you’re a buyer or a seller, here are some options:

If you’re buying

Ask the seller to reduce the asking price

It might feel like a long shot, but if your initial offer has been accepted, you may be in a stronger position than you think to ask your seller to lower their asking price. A down valuation may occur several weeks after your offer has been accepted, and depending on your situation, your seller might not want to restart their sales process. 

Bear in mind that if your lender has down valued the property, then others may do the same. Your seller is likely to be aware of this and could be willing to accept a lower offer.

Pay the extra money yourself

If you’re able to, you might decide to pay the difference between the valuation and agreed price yourself, if it doesn’t amount to a large sum. Of course, this may be unaffordable, and it’s worth asking your seller to lower the asking price before you stump up the extra money. They may agree to some reduction in the asking price, reducing the amount you’ll need to pay.

Some buyers take out an additional loan to cover the cost, but as with any financial commitment, it’s important to carefully consider the implications of additional repayments when you’re taking out a mortgage as well.

Apply for a mortgage with a different lender

If you really want to buy the property, but neither of the above options work for you, you could consider applying for a mortgage with a different lender. However, it’s a time-consuming process, as you’ll essentially be starting from scratch again, and there’s no guarantee that the new lender won’t also down value the property. 

Walk away from the purchase 

If none of the options mentioned so far work for you, you might need to walk away from the purchase. Unfortunately, this might mean you lose some money that you’ve paid to your lender for booking or valuation fees, and for legal work, but it may ultimately be the best decision and your only option.

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If you’re selling

Agree or decline a price reduction

If your buyer asks you to reduce the asking price, you can choose whether you accept or reject their request.

While agreeing to a price reduction means you’ll get less for your property, rejecting the request could see you back at square one. You may need to start the sales process again, and there’s a chance another lender will also down value the property.

Wait for your buyer to get a new mortgage offer or work out how to pay the difference

If your buyer plans to apply for a mortgage with a new lender, is gathering the money or taking out a loan to pay the difference between the valuation and their offer, you might decide to wait for them to sort this out and continue with the sale.

However, while this means you’ve kept an interested buyer on board, the process could take months, so doing so will depend on your personal circumstances. 

Finding a new buyer

Whatever your buyer decides to do as a result of a down valuation, you are within your rights to stop the sales process before exchange and find a new buyer.

Is there anything you can do to avoid a down valuation?

If you’re a seller, the best thing you can do to avoid down valuation is to be realistic with your asking price. While this won’t prevent lenders from down valuing your property, it might help to minimise its impact.

The best way you can do this is to do your research to see what price similar properties are selling for in your local area. You could also use a local estate agency with surveyors who have in-depth knowledge of your area and type of property. This could mean that you’re more likely to get an accurate valuation and avoid future difficulties.

If you’re looking to buy, and want to avoid a down valuation scenario, then doing some research into local property prices can also make sure you aren’t offering more than the property is worth. Talking to local estate agents may help to give you an idea of what is a reasonable offer price.

Finally…

If you’re buying it can be helpful to talk to a professional mortgage broker for advice.

Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.

If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,000 reviews.

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