Figures from Emoov show that in the last two years the number of down valuations have increased from one in twenty sales, to one in five! This is the highest rate since the UK financial crash of 2008.
So, what is a ‘Down Valuation’? This is the name for lender offering a smaller sum than the buyer has requested to borrow, and lower than the price at which the buyer has agreed his/her offer. Meaning the buyer is left with a shortfall in the sum they have to buy the property. It causes massive issues, the buyer can try to re-negotiate, but many vendors won’t have the capacity to allow a reduction in the agreed price, if the buyer can’t find the extra cash to make up the shortfall the sale will fall through.
The Process Of A Down Valuation
1) After agreeing to purchase the house from a vendor, the buyers lender will ask a surveyor to value the house.
2) The surveyor will look at comparables in the area that have sold (must have completed); the local property market; and the current condition of the house.
3) If the surveyor then believes the property to be worth less than the agreed price, then he will ‘down value’ the property.
4) The lender then places this value on the property which they feel represents the market value, and at which the house could be re-sold if the buyer defaults on their repayments
5) When this happens, buyers need to either re-negotiate the purchase price or find thousands of pounds extra towards the purchase to make up the shortfall in their mortgage
During March this year, 86 per cent of properties sold for less than the asking price — the highest level since records began in 2013, according to the National Association of Estate Agents. This does have implications on those surveying the properties, who have become far stricter in their valuation of a property. A spokesman of the Royal Institution of Chartered Surveyors has stated the ‘When house prices are falling or rising at a faster rate than typical, as they are in some areas of the country, or when transaction levels are perhaps not what they might be, surveyors have to be very certain they can evidence the value on paper and always strictly follow valuation guidelines’
Buyers are paying the price for this, with more having to go to different lenders that are willing to lend the agreed price of the property. These other lenders may have a higher interest rates on their loans and therefore buyers are paying more on their monthly mortgage payments in order to live in their dream home!