With properties going for more than their asking prices and lenders potentially not providing the cash needed, there is room for buyers to lower their offer – gazundering – after it has been accepted and still obtain the property at market value.
So, this week Mortgage Solutions is asking: With property prices said to be artificially inflated due to demand, have you come across any gazundering recently? Have you seen general misbehaviour during this period of heightened activity?
With demand vastly outweighing supply, we have certainly experienced a mini pricing boom, bidding battles and inadvertent heartache for many of our clients.
Whilst we are yet to experience a case of gazundering, it is not surprising that this might be more commonplace, particularly when buyers want to protect their interests in a purchase considering “artificially inflated” prices.
Many of my clients are having to bid and offer high on property to stand a chance of success.
And whilst the old adage ‘it’s worth what someone’s willing to pay’ may be used by some, luckily we have the unbiased input from mortgage valuers that bring a purchase price back down to reality – oftentimes with a bump.
I have personally had an astonishing number of down valuations on recent purchase applications, and have worked with my clients, agents and vendors to take a more realistic, longer term view of the house price.
As advisers, we have a responsibility to make our clients aware of the current market conditions and to understand the potentially devastating impact of negative equity. Now more than ever we must encourage our clients to step back and take a longer term view of their purchase.
A mortgage valuer protects the interest of a buyer, as well as a lender and should therefore, not be viewed as a blockade when purchasing; but a potential lifeline to ensure ongoing financial security.
We haven’t seen clients acting recklessly, but we’ve definitely seen them acting with a strong sense of urgency.
Clients have more so been caught up in the fervour of the market and desperate to secure the property they want in the face of largely increased levels of competition.
Clients are definitely having to put in offers on multiple properties because they cannot be sure of getting the one they want. It is more so a seller’s market at the moment, so the control is in the hands of the vendor rather than the purchaser.
We’ve definitely seen almost all – if not all – of our clients engaged in a bidding war due to high demands and competition.
We have had numerous clients get gazumped at the last moment who’ve then been required to match a higher bid after their offer had previously been accepted.
The only advice we can really give is to offer the maximum figure the client feels comfortable with in order to secure the property. There is always a risk of down valuations when a bidding war has taken place because the surveyor is working on historical data and may not agree with the figure that was reached.
This is especially a problem when borrowing at higher loan to value because if there is a down valuation, and the client still wants to purchase at the agreed price rather than accept the surveyor’s figure, they have to put in the additional money as cash.
At a lower loan to value however, a down valuation may not actually change what the client can borrow.
I have not seen any bad behaviour from clients; but they are under pressure to put offers in when in some cases, they might want more time to think about whether it is truly the property they want.
This is because of the supposed savings with the stamp duty holiday and because there is more buyer competition.
So we’re seeing people put in much higher offers, sometimes higher than what they are comfortable with, just to secure a property.
Only time will tell how they will feel about that later on and whether there will be any regrets when it comes to refinancing. Especially if there is a bump in the market and the value of the property potentially falls.
They may feel like their property is not truly worth what they paid. Especially if the market slows and rates are higher than they are now by the time they come to the end of their two-year term.
Here, I would advise anyone to only put an offer in that they are truly comfortable with.