The number of down valuations by lenders on house purchases rose to 12.8 per cent in April 2022, up from 10.4 per cent on the same month last year, according to Mojo Mortgages.
However, the broker said that there had been a slight slowdown in recent months of purchase down valuations compared to the high of 14 per cent in November 2021.
The online broker said having a property down valued by a lender can cause major issues for both buyers and sellers, as well as those looking to remortgage.
Mojo claimed the rate of down valuations on purchases has doubled since before the pandemic and the trend is likely to continue rising despite a fall in the last few months.
Down valuations involving remortgages has continued to fall over recent months, but at 15.4 per cent in April is higher than for purchase mortgages.
A down valuation means a mortgage lender has valued the property at less than the agreed selling price, and will be unwilling to lend the full amount as a result. For example, if a buyer has agreed a purchase price of £200,000, but the mortgage valuation is at £180,000, this work out as a down valuation of £20,000.
Richard Hayes (pictured), co-founder and chief executive of Mojo Mortgages, said down valuations are sometime seen as precursor to a price crash, but that its data showed it was more likely that people were trying to take advantage of a buoyant market and not quite getting it right.
“The property market has seen unprecedented demand over the last couple of years, with month after month of record price rises. This level of demand means that, in my opinion, some sellers are trying their luck and setting a selling price higher than estate agents recommend. With some properties, like three-bed homes, in such high demand, sellers are trying to see what they can achieve,” he explained.
“With supply of new homes onto the market still well below demand, buyers are also willing to pay more for a property because of the lack of similar alternatives.”
He added: “For those who are remortgaging, it seems that some are simply trying to access a bigger nest egg than they actually own to give them more cash in the bank or to access lower interest rates by having a better loan to value ratio on a new mortgage. This may work for some, but they have to be prepared to be down valued if they are overly ambitious with their valuation.”
Options when a property is down valued
Hayes said that if a seller has already found another property they could be willing to negative so they can move forward with their purchase. He added that showing evidence of similar sale prices in the area could help encourage a seller to lower their asking price.
He continued that finding a new lender and a different surveyor could be an option as not all lenders use the same approach to valuations and a different surveyor may value the property differently.
Hayes added that increasing the size of your deposit or loan to value (LTV) could also be an option, and buyers should try and work with the lender.
“Working with a mortgage broker can help you to understand all of the options available. Bridging the gap between your agreed price and the lender’s valuation by increasing the deposit is one option, but buyers could also negotiate a higher LTV mortgage, although this would result in a higher interest rate” he said.
He continued that only certain lenders allowed appeals on valuation decisions, and to be successful a borrower would need “compelling evidence about the sale of similar properties in your area”.
“The pandemic meant most lenders used desktop valuations, and if the surveyor hasn’t viewed the property in-person, they may not be aware of home improvements or changes that have been made. If this is the case, you may be able to ask the surveyor to visit the property in-person to re-evaluate,” he said.
