Picture this: you’ve just secured the home of your dreams, and you’re ready to pay the full asking price for it. However, your bank has determined that your dream home isn’t worth the full price-tag, and therefore won’t lend you enough money to purchase it – this is the dreaded down-valuation.
It’s a situation no one wants to find themselves in and can lead to property dream heartache and chains collapsing. It’s also more likely than you’d assume, with rising interest rates causing the number of down-valuations in 2023 to increase. It is estimated that 400,000 properties were down-valued in 2022, albeit only by between £5,000 and £10,000 in most cases. Surveyors remain cautious when valuing properties as a result of such interest rate rises, causing valuation discrepancies. 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 considerably 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 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. But with many experts sharing gloomy financial forecasts you may find that lending institutions, banks and brokers are more cautious.
Ever changing economic factors can see hopes of maximum values severely dashed by a down valuation – it’s important to note that between from Jan 2020 to Jan 2022 almost 45% of properties were down valued, so take heart that it doesn’t mean that the property isn’t worth the value you’d hoped, just that the lender isn’t willing to lend that particular value.
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. But those hopes could be severely dashed if your home is down-valued.
There are a number of reasons why a down-valuation may occur:
“97% of Centrick instructions achieve 97% of the full asking price or more”
Figures suggest that mortgage down-valuations are quite common. In fact, research by The Times indicated that 400,000 properties were down-valued last year, with most properties suffering a down-valuation of between £5,000 and £10,000. According to the findings, homes valued between £400,000 and £500,000 are most likely to experience mortgage down-valuations.
The volatile economy – in no small part due to the perfect storm of the cost-of-living crisis, inflation and residual effects of the pandemic – has left mortgage lenders nervous. This uncertainty has led to an increase in properties being down-valued. In some cases, down-valuations are up to as much as 20%.
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 your lender down-values your home, here are some tips to help you avoid missing out on your dream house:
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. For more information on mitigating down-valuations in 2023, and avoiding the potential damage of rising interest rates, contact our team below:
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