You have finally found your dream home and you are willing to pay the full asking price. However, the bank says your potential new property is not worth the price tag. For this week’s Top Tip Tuesday, we will be sharing what you need to do next.
A quick summary:
- Down valuing is where a surveyor, acting on behalf of a lender communicates that a property is worth significantly less than the price that was agreed by the seller and the buyer.
- It is not unusual for properties to be down valued by mortgage lenders.
- Whether you are a seller or buyer, there are always ways around the problem. Here is what you need to do if this happens.
So, you have found your dream home and you are ready to go for it. However, the bank says that the property you want is not worth the money you are willing to pay for it.
As a result, the lender is unwilling to lend the money. This is what is called down valuing.
It is a scenario no one wants to be in and can lead to property dream heartache and chains collapsing.
So, what do you do if this happens to you?
Today we will be deep diving into why properties can be down valued and the options available if your lender says no to loaning you the full amount that you need.
What is down valuing?
Down valuing usually occurs when you are selling your home.
For example, you may have found a buyer and agreed with them a sale price of £500,000.
It is then down to their lender’s surveyor to find evidence to validate your asking price.
The lender will want reassurance that the property is worth what the buyer wants to borrow for it.
However, if the surveyor then values the property at for example, £450,000, that is a substantial down valuation of 10%, which can then leave the seller and buyer in a tricky situation.
Why does down valuing occur?
There are several reasons why a property might be down valued:
- The seller has set an over ambitious price tag on their property.
- The seller is over optimistic about the amount of value their renovations has increased their property price by.
- Lenders are wary about the over-inflated prices.
- The surveyor has discovered problems with the property.
- The surveyor has valued the property that is outside of their usual area of expertise. In that case, it is possible that they my have been unfamiliar with the nuances of the local markets.
How common are down valuations?
Figures suggest that down valuations are actually quite common.
In fact, industry research has shown that in recent years, almost half of UK properties (46%) were down valued by lenders.
According to the study, homes valued between £400,000 and £500,000 have fallen victim to the most devaluations.
What happens if your own property is down valued when remortgaging the property?
While down valuations are commonly associated with buying and selling properties, they can also have problematic effects when looking to remortgage and switch to another mortgage deal without moving home.
Normally, homeowners’ remortgage because their current arrangement – such a two year or five year fixed-rate mortgage has come to an end.
If you are looking to do this, you must have a valuation done on your property.
However, if the lender deems your property lesser in value than what you anticipated it to be, your application to move to a new lender could be rejected.
In some cases, there may be few options but to move onto your existing lender’s standard variable rate (SVR) which may mean a considerable jump in your monthly mortgage repayments.
How are homes valued?
Properties are valued based on several factors:
- The overall condition of the property.
- The size or square footage of the property.
- The amenities it has (e.g., number of bedrooms, if it has an office or garden etc.)
- The sale price of similar properties in your area for the last six to twelve months (this provides a good indication of the amount buyers are willing to pay for properties in your area).
- Knowledge of supply and demand in your area.
- An understanding of the current market – how hot or cold it is and which way it is moving.
What can you do if down valuing happens to you as the seller?
If you are looking to sell and your home and it is down valued, here are some things you can do:
- Find a buyer with a different lender willing to value your property at the price you think it is worth.
- Be willing to lower the asking price.
- Spend money to address the reasons why it has been down valued.
- Wait to see if the property rises in value. However, by doing this you could risk losing the interested buyer. There is also the risk that your property could go down in value too, rather than going up.
What can you do if down valuing happens to you as the buyer?
If you are hoping to buy then receive a down valuation from your lender, there are some things you can do to avoid missing out on your dream home. You can:
- Get the property valued again by a different surveyor that is acting for a different lender.
- Try to renegotiate the price with the seller – or simply lower your offer.
- Acquire a loan for the shortfall.
- Increase your deposit to cover the cost of the devaluation – however, this may mean that you are dipping into savings that was meant for other costs.
While down valuations are from ideal, there is always a way out, so do not lose hope if it does happen to you!
With a little effort and perseverance, the sale (or purchase) could still go through.
At Boxall Brown & Jones we are dedicated to ensuring a smooth sale and/or property purchase. With local property experts to hand, we can ensure a stress-free service, right from the moment your property is valued right up to moving day.
Why not give our friendly property team a call on 01332 383838 (for Derby) or 01773 880788 (for Belper).