Have you experienced a down valuation? Recently at KB Mortgage Services, we have experienced a slight rise in the number of house purchases which have incurred a down valuation during the mortgage survey process.
This occurs when the bank which is lending on the mortgage doesn’t accept the agreed purchase price as they think that it is overpriced. Put simply, they are seeking to protect their own investment on the property, but they are also protecting the buyer, providing them with a more accurate valuation of the property that they wish to purchase – rather than the estate agent’s estimate at the current moment in time.
This situation is happening more frequently at the moment due to the buoyancy of house market prices. If this is happening to you, you need to look at the options that are available, as it can potentially derail the whole purchase.
It is important to understand what a mortgage lender’s valuation will be based on.
It is based on three factors:
- The current condition of the property you are looking to buy
- Recently completed sales (last six months) of similar properties in the immediate area
- Their opinion of the local housing market
Mortgage lenders will prioritise protecting their debt and will consider how difficult it may be to reclaim it if a house is overvalued. So, if the agreed price is above that of similar houses sold in the last six months or if the house condition is below what is expected, then the surveyor might revise the value accordingly. So where does this leave you?
Let’s look at an example scenario:
- You agree to purchase a property for £160,000
- You have a deposit of £16,000 (10%) and you’ve applied to a mortgage lender to borrow the remaining balance of £144,000
- The mortgage valuation results in the property being undervalued by £10,000, down to £150,000 and therefore the maximum loan – based on the new valuation and product chosen – would be £135,000.
The different options:
- You can go back to the vendor advising them that the survey has come back at a lower amount and see whether they would renegotiate to the price it is valued at. If the seller accepts the new valuation and reduces the asking price accordingly, then the sale can go ahead on the reduced amount.
- You can put in the extra deposit of £10,000 to remain on the same product and put down a £25,000 deposit to purchase the property.
- You could look at a higher loan to value (LTV) product and put down a slightly higher deposit than originally planned of £17,500. However, the interest rates would then be higher to counter the risk of the higher loan to value.
- You could reapply and try with another lender and get another surveyor’s opinion as to whether they think it’s worth the price.
- If none of the above are possible or comfortable, then you would need to withdraw from the purchase and find another property. If this were to happen, try to have a plan B and keep an eye on the property market and don’t stop viewing new properties. This means that if something goes wrong and you find another property you like, it can make this decision of pulling out less emotional and more based on facts and finance.
If you find yourself in this situation, you need to think about whether you would want to proceed with the purchase if the house isn’t worth what you are willing to pay for it. In this scenario, you would potentially be in negative equity straight away because for every pound you pay over the current asking price in its current condition, it means the property will have to go up in value while you live there.
However, the counterargument could be that if you plan to stay in the property long term and you love the house that much, this might not concern you and there is always the potential that house prices will increase over time.
If you are in a similar situation and require mortgage advice, please contact us for your free, no-obligation consultation today:
Call 07834 818805 or email [email protected]
Note: Your home may be repossessed if you do not keep up repayments on your mortgage.
Fees may be payable at a later stage.
Approval no: Sol10612