Homebuyers need to watch out for ‘down valuations’

Homebuyers need to watch out for ‘down valuations’

Homebuyers need to be cautious of increases in ‘down valuations’ as house prices continue to rise, according to industry experts. 

Independent financial advice firm Continuum warned that although house price index figures released last week from the ONS showed a 12.8 per cent increase in house prices in the year to May, surveyors working for mortgage lenders have “not followed suit”. 

According to Continuum, several of the mortgage specialists at the firm have seen an increase in the number of ‘down valuations’ by surveyors in recent months.

Article continues after advert

As a result, the firm said borrowers are either having to renegotiate the offer price or make up the difference from their own resources.

Mortgage broker Luke Spellman from Spellman Financial Services agreed ‘down valuations’ have become a more frequent issue over the past few months.

“It is frustrating but something that brokers are used to. With concerns around the cost of living and the prospect of the country falling into recession, I do feel that down valuations will continue as surveyors will remain and potentially become more cautious,” he said.

Mortgage and protection adviser at P&M Financial, Prabhakar Kapadia echoed this and added that it was a particular problem in and around London. 

In Kapadia’s experience, despite warning that a qualified valuer does not agree with their valuation, most clients think the property is worth what they are paying and will either find the difference or try to renegotiate. 

Adviser at Continuum, Anthony Harris, said he has seen more than 50 per cent of purchase applications being ‘down valued’ recently and expects that this will continue to rise. 

“Sellers are asking high prices and there always seems to be more than two buyers who are prepared to enter a bit of a bidding war, pushing up prices further,” Harris said. 

“A down valuation can be a particularly large hit where applicants have been seeking a high loan-to-value mortgage – the lender will always base their loan on the lower figure,” he added. 

However according to Rics, the independent professional body representing surveyors, in reality there is no such thing as a down valuation.

A spokesperson told FTAdviser: “Valuers have a duty to report what is the market value of a property, and this is decided upon independently and in accordance with international valuation standards. When a valuer is calculating the market value, they will base this on a wide range of transactional and economic indicators, which will include items such as the sales of similar properties in the local area, and the professional’s knowledge of the local market including supply and demand dynamics.    

“The calculated accurate market value, and an ‘asking price’ or what people are willing to pay, are different. This is not down-valuation, but would in fact protect the lender and the buyer from risk, by ensuring the loan is advanced on the basis of a professionally derived value.”