Following submission of a full mortgage application, the prospective lender will instruct a valuation of the property. With most major high street lenders, this will be done free of charge. The mortgage valuation is part of the bank’s process to confirm they are happy to lend against the property. Down valuations on a purchase occur when the bank’s appointed surveyor believe the property is worth less than the agreed sale price.
According to research from HBB Solutions based on UK House Price Index data from HM Land Registry, 866,906 out of a total 1.95 million property transactions may have been down valued between January 2020 and January 2022.
The latest UK House Price Index summary for April 2022 has house price inflation (HPI) at 12.4%. HPI has been high for an extended period and this is a major factor in the number of down valuations. In the current climate, concerns over the sustainability of HPI and a tendency from surveyors to be cautious in valuations has combined to cause an increase in the frequency of down valuations.
Down valuations are frustrating for all parties involved. The sale feels like it’s complete and people start to look forward to new beginnings! However, if the sale is to progress and there is no option to appeal the down valuation, attention must turn to how to move forward. There are generally three options available to buyers:
- Renegotiate – Renegotiating with the sellers to a lower purchase price, ideally to as close to the down valuation figure as possible. This is often done through the estate agent or directly with the seller if there is an open line of communication.
- Higher LTV – Proceed at a higher loan-to-value (LTV). If you’ve applied for a 75% LTV mortgage, the lender will only allow you to borrow 75% of the down valuation figure. Increasing the LTV will typically incur a higher interest rate but may give you the chance to borrow the original amount. For those who have applied for 90% LTV mortgages, this option is often not available as there is little scope to increase borrowing.
- Pulling Out – If no renegotiations aren’t possible, increased borrowing is restricted by the original LTV and you cannot or do not wish to make up the shortfall through an increased deposit, pulling out the purchase may be inevitable. Down valuations also provide buyers an opportunity to reconsider whether they’re paying over the odds.
The mortgage valuation is a very necessary part of the process. From a responsible lending point of view, banks have to check what they are lending against. Paying over the odds for a property could leave a buyer in negative equity and therefore unable to sell the property in the future. If you’re concerned about potential down valuations, researching sold prices for local, recently sold properties, comparable to what you’re looking at, is a good place to start! For more advice or any other mortgage and life insurance queries, we’re here to help with free, professional advice.