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Down valuations ‘almost certain’ at the moment due to ‘cautious valuers’ ‒ analysis

  • 08/09/2023
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Down valuations ‘almost certain’ at the moment due to ‘cautious valuers’ ‒ analysis
Brokers have suggested that down valuations are becoming ever more common at the moment as valuers adopt a more cautious approach to the market.

This week Nationwide Building Society revealed that house prices have dropped by 5.3 per cent in the last 12 months, representing the largest annual drop seen since 2009.

That price decline is feeding through into the valuations for new mortgages too, with some brokers telling Mortgage Solutions they have become almost inevitable on applications.

Are down valuations becoming inevitable?

Peter Stamford, director at Moor Mortgages, said down valuations are “becoming a common narrative”, with values adopting an increasingly “cautious stance”.

He continued: “While the landscape appears challenging, it does nudge consumers to make more considered decisions, potentially avoiding problems later down the road. It’s essential to sail these fluctuating waters with caution.”

Surveyors are “a pessimistic bunch” at the best of times, said Gareth Davies, director of South Coast Mortgage Services, so they are “par for the course” in the current market.

We’ve certainly seen an increase recently, but to be honest they’ve not been significant enough to pose problems for most of our clients,” he continued.

Down valuations are “almost certain” to occur at the moment, suggested Stephen Perkins, managing director at Yellow Brick Mortgages, even when the applicant is being cautious over remortgage values or has negotiated a sizeable discount on a purchase.

He continued: “Valuers primarily work on behalf of the lender and are therefore always well ahead of any downward curve in house prices with some down-valuing by 10-15 per cent.”

Pricing sensibly

Martin Stewart, director of London Money, said  his firm was not seeing many purchases at the moment, but those that are moving forward appear to be holding their valuations.

“That may well be because agents and vendors have caught up with the reality of the situation and are pricing more sensibly.”

Stewart continued: “Right now , the elephant in the room could well be future indexed valuations. The market is dominated by product transfers and if prices do drop with any consistency this could well catch a few people out next year when it comes to their turn to enter the arena of higher interest rates.”

Richard Campo, founder of Rose Capital Partners, said his firm was not seeing any down valuations at the moment, which he put down to most buyers “either agreeing a small reduction or only buying well priced properties in the first place”.

However, he noted that the situation with remortgages is “proving more difficult”, with valuations coming in 10 to 15 per cent below what the owner experts.

This can be problematic if it bumps the borrower down into the next loan to value bracket. “Certainly while fixed rates are dropping as they are, that is less of an issue but it can trigger a whole re-assessment of the mortgage, product or lender.”

Regional variances

Buyers are being “pretty savvy” in realising that it is now their market, argued Jane King, mortgage adviser at Ash Ridge Private Finance, who said they are taking advantage by making the sorts of offers which they may not have tried in the past.

King said she had seen down valuations of around five to 10 per cent of late, mainly on detached houses and flats. She added that these tend to be in “less fashionable areas”, though she added that there are pockets of the UK where prices are holding their own.

I have just had a client offer slightly over asking price for a property in Twickenham where the sold prices are pretty much the same as they were a year ago.” 

Another area that is apparently avoiding the problems of down valuations is Leicester. Anil Mistry, director of RNR Mortgage Services, noted that in certain pockets of the city demand has remained steadfast “creating a market where buyers not only meet the asking price but also adeptly adjust their budgets to accommodate higher interest rates”. 

Buyers are responding to these changes in valuations in different ways, noted King. 

Some have taken the view that the money they lose on their sale is gained through the lower price paid for the property they are purchasing, while others are “compromising on their ‘must haves’.”

The peak has passed

Imogen Sporle, managing director of Finanze Property, said the down valuations peaked two months ago ‒ since then clients have been more successful in negotiating discounts, as well as being “more realistic” on what a property is worth.

She continued: “What we see often is the buyer going back to the seller post valuation and asking for the purchase price to be dropped in line with the valuation.”

According to Ranald Mitchell, director of Charwin Private Clients, the use of desktop valuations by many lenders on remortgages “tends to be quite forgiving”.

What brokers can do about down valuations

Perkins noted that down valuations present “challenges” for brokers, potentially meaning the need to challenge surveys or switch lenders in order to secure a different surveyor.

King suggested that the options for brokers are limited, though advisers can present a realistic idea of what can be borrowed and ensure this is “comfortably affordable”.

We can also help with chatting through affordable homes options such as shared ownership, first homes, joint borrower sole proprietor etc so that borrowers can keep all of their options open,” she added. 

Charles Breen, founder and director of Montgomery Financial, said his firm prioritise discussing the possibility of the property being down valued with clients from the offset, as well as what options are open to them if this were to happen.

He added: “I believe having this information early allows them to mentally prepare for it, for it not to come as a surprise.”

Sporle argued brokers have an educational role to play, pushing clients to check the local area for comparable properties and what they have sold for in order to get a realistic value.

This was echoed by Campo, who said that brokers can “set expectations” for clients, and are also in the fortunate position of being able to go back to the market if a particular lender has issues with the valuation.

He added: “I also take a broader view that over time these small market fluctuations tend to even out.”

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