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You’ve found your next home and you’re ready to go for it. But the bank says the home you want isn’t worth the money you’re willing to pay for it. Consequently, they’re unwilling to lend it. That’s called down-valuing.
It’s a situation no one wants to find themselves in and can lead to property dream heartache and chains collapsing. So what do you do if it happens to you?
Here we take a look at why properties can be down valued and the options available if your lender says no to lending you the full amount you need.
Down valuing is where a surveyor acting on behalf of a lender assesses a property and says that it’s worth significantly less than the price agreed by the seller and buyer.
In other words, the lender won’t provide a loan to cover the seller’s full asking price, because their valuation has revealed the property is worth a lot less than what the seller is asking for – and what the buyer has agreed to pay.
Down-valuing usually happens when you’re selling your home.
It’s when the surveyor, acting on behalf of the buyer’s lender or mortgage-provider, carries out their valuation and disagrees with the seller about how much the property is worth.
For example, you may have found a buyer and agreed with them a sale price of £500,000.
It is then down to the lender’s surveyor to find evidence to substantiate the asking price. The lender will want reassurance that the property is worth what you want to borrow for it.
But if the surveyor then values the property at, say £450,000, that’s £50,000 less than the sale price agreed, and a down valuation of 10%, which can leave you (and your buyer) in a tricky situation.
As a seller in the current market, you may have had high hopes of commanding a high price for your home, given the current levels of demand. And the race to cash in on the stamp duty holiday (recently extended until the end of June with a tapering-off period until the end of September) means demand for properties – especially family homes – is high.
But those hopes could be severely dashed by a down valuation.
There are a number of reasons why a devaluation may occur:
Figures suggest that down valuations are quite common.
In fact, research from Bankrate UK, a mortgage comparison site, found that in the first six months of the Covid crisis (from March to August 2020), almost half of UK properties (46%) were down-valued by lenders.
According to the findings, homes valued between £400,000 and £500,000 have fallen victim to the most devaluations.
The volatile economy – in no small part due to the perfect storm of the pandemic and Brexit – has left mortgage lenders nervous.
This uncertainty has led to an increase in down valuations, in some cases by up to as much as 20%.
Looking forward, lenders are also fearful of a potential dip in property values when the stamp duty holiday does finally come to an end – as buyer demand may decrease at that time.
While down valuations are most commonly associated with selling (or buying) a home, they can also prove problematic if you’re looking to remortgage and switch to another mortgage deal without moving home.
Typically, homeowners remortgage because their current arrangement – such as a two-year or five-year fixed-rate mortgage – has come to an end. If you want to do this, a valuation must be made.
But if the lender determines your home is worth less than you believe it is, your application to move to a new lender could get rejected. In some cases, there may be little option but to move onto your existing lender’s standard variable rate (SVR) which could mean a hefty jump in your monthly mortgage repayments.
Properties are valued based on a number of factors. They include:
If you’re looking to sell and your home gets down-valued, here are some things you can do:
If you’re hoping to buy, but then get a devaluation from your lender, here are some tips to help you avoid missing out on your dream home:
While down valuations are far from ideal, there is a way out, so don’t lose hope if this happens to you.
With a little effort and perseverance, the sale (or purchase) could still go through.
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