As a result, this may lead brokers to lose some deals.
So, Mortgage Solutions asked this week’s Marketwatch panel, how brokers are navigating this issue, as well as how they are supporting their customers.
The term ‘down-valuation’ is enough to cast doubt over any potential purchase, let alone the client’s ability to borrow. This is where the value of the mortgage broker comes in.
There are no online algorithms that can educate and restore confidence while establishing a solution to the problem. Yet, this is exactly what a good mortgage broker does – provides a solution.
Those in the new build arena will be subject to this more than others, while they walk the thin line between a surveyor’s sometimes jaundiced view of the new build premium and a developer’s optimistic view of the market.
These mortgage brokers will also find an additional challenge in demonstrating to the developer that they can add value to them in a positive way that does not involve reducing the purchase price.
A good mortgage broker’s job is to provide the funding to facilitate the purchase of the property. The tools are knowledge, experience and the ability to link the client to the secured funds.
Sometimes, this will involve an often tedious process of providing comparables, sometimes negotiation, and approaching and discussing a number of lenders.
We can contrast this with a client who goes to a lender direct – all they get is a rejection letter, which suggests the home they have fallen in love with isn’t worth what they thought.
Mortgage brokers are able to add value by explaining the process, working with the client and offering a variety of options to enable their dreams to come true.
If a lender does not agree with a property value, do not despair, it is not all doom and gloom for advisers. Of course, with lending based on a percentage of property value and the youngest applicant’s age, down-valuation is obviously a serious threat to the equity release process. So, what can advisers do to avoid completion catastrophe?
By researching the local property market, advisers can realistically manage expectations about the value of clients’ homes. However this is by no means foolproof. And, should the sometimes inevitable shortfall in funds or rate increase happen, they have two options: accepting the offer or reconsidering it.
Before disappointing the client, a good adviser will rework the market to investigate other options, returning to their client armed with positive solutions. When discussing options, they might also choose to use the sourcing system Iress, which now shows rates and lenders’ net fund release.
Thanks to this proactive approach, less than five per cent of our recent cases failed to secure a proceedable offer, with construction or location issues compromising more completions than down-valuation.
With lenders now reacting by offering medical enhancements, providing new schemes with higher LTVs, cash backs and contributions to increase the advances over the standard LTVs, alternative solutions are growing.
So, challenging yes, but it is not all doom and gloom. With a bit more leg work and research on the part of the adviser, you can still move successfully to case completed, to happy clients and those all-important referrals.
In the current climate, with Brexit uncertainty, we have definitely seen a marked increase in down-valuation of properties.
Surveyors are being overly cautious, as they think that house prices are going to drop, so they are valuing properties lower as a result.
I do not actually think house prices will drop. But completely understand why this is happening.
When it does happen, it can be very difficult for the borrower, because, if the property is deemed to be worth less by the lender’s surveyor, the lender may reduce the amount they will lend. In this case, as a broker, we will do a comparable and get a second or third independent valuation on the property.
If these valuations agree with the down value, it is then a case of the buyer either having to find a bigger deposit to make up for the lesser amount the lender is prepared to lend, or finding a different lender.
It is a difficult situation, but as brokers, we always work hard to avoid the buyer losing the sale. In some cases, if the property has been down valued significantly, it may be that the buyer does not want to go ahead, but if they do, we will then do everything we can to find them another mortgage deal which allows them to go ahead and purchase the property.