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Lack of comparables and lender caution leading to down valuations – analysis

  • 28/10/2020
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Lack of comparables and lender caution leading to down valuations – analysis
Brokers have reported more down valuations on properties as lender caution remains and a lack of home moves in recent years has resulted in a dearth of comparable property data.


According to advisers Mortgage Solutions spoke to, purchasers and remortgagors alike are finding themselves at the mercy of the risky environment and those living in higher priced properties are seeing their homes return with a lower price than expected. 

This has been highlighted with growing evidence that it is demand for properties in this price range which has been a significant driver of housing market activity since reopening from lockdown.


Deposit woes 

A down valuation can leave buyers struggling to make up the deposit for an agreed sale price, as it means they will need to put more money in if a lender will only lend up to the new, lower value. 

This was the case for a couple of first-time buyers who approached Adam Wells, co-founder of Lloyd Wells Mortgages, having agreed to buy a home for £500,000.

They found they needed to increase their £75,000 deposit to cover the shortfall after it was down valued to £475,000 with an 85 per cent loan to value (LTV) mortgage.

Unable to raise the full £96,250 required, the buyers ended up pulling out of the transaction. 


Remortgage dilemma 

Wells said this also happened during a remortgage with a buy-to-let customer. The application was submitted with a value of £275,000 and rent of £1,650 a month however, the survey came back with a value of £220,000 and monthly rent of £1,200. 

Fortunately, he was able to find another lender and is waiting to hear back. 

He said: “We’re definitely seeing a lot more down valuations. It feels like the lenders are using the surveys to manage their pipelines. I know they’d never admit to this, but they do seem to be turning away good business.” 

Mitul Patel, mortgage adviser at Lemon Tree Financial, said he had also come across “a lot more reductions in property prices when it came to remortgaging some of his clients. 

He said this was not too uncommon as owners always assumed their homes were worth more but added with a lack of product availability, there could be a danger for clients who did not have much equity in their homes. 

To prepare for a down valuation with remortgaging low equity owners who have fewer optionsDarryl Dhoffer, mortgage and protection adviser at The Mortgage Expert, said he readied two instructions for those on the cusp of 80 or 85 per cent LTV in their homes to avoid any “awkward conversations”.

“We all know that appealing a surveyor’s down valuation is pointless, and in today’s Covid-affected market, they hold all the cards, even though indicators have shown housing market valuations have remained resilient,” he added. 


Inactive high value market 

Brokers pointed out that a slowdown in downsizing and home moves may have had a knock on effect on those in larger homes as although the stamp duty holiday has stimulated movement at this level, surveyors sometimes have no recent data in the local area to base their decisions on. 

Rob Gill, managing director at Altura Finance, said consequently he was primarily seeing down valuations on homes £1m or over.

In one instance, a remortgage with an estimated value of £1.2m returned with a valuation of £1m. 

“I suspect the issue – and this has been bubbling for a while – is a lack of comparables. These properties are family homes that people might live in for 30 years, so for the same reason they only go up for sale every 30 odd years,” Gill said. 

“Stamp duty hasn’t helped, to move at that level brings it well into six figures. So, people move less, hold on to their properties and there are fewer sales and valuers struggle to find comparables, especially where it’s a remortgage and they err on the side of caution.” 

Gill said he had seen three seven-figure homes receive down valuations in the last two months. However, due to the equity the clients had built up in their homes over the years, it was not much of an issue and none had been left in a position where they had to revert to the standard variable rate. 

He added: “One client said, ‘that’s fine I’ll take a slightly smaller amount’ and I managed to get this one solved by lunch time. 

“With another client, it was a case of restructuring the loan so less of it was interest-only, but I got a higher valuation from my lender than the client got from his current lender, so he was happy. The other client wasn’t able to proceed but went with a product transfer.” 

James McGregor, director at Mesa Financial also noticed a trend of down valuations among the higher priced residences he had been dealing with. 

Similar to Dhoffer, McGregor has been making sure he has a plan B and C to buffer against this but he said he understood why banks would be wary. 

I think the main issue is the surveyors are scared of being taken to court so are cautious. There has been a pent-up demand and a false sense of security in the housing market.  

“We are all forgetting we are currently in the middle of a recession. Banks and surveyors have a right to be cautious,” he added. 


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