Disputes over valuations to rise as housing market slows

The rise in so-called "down valuations" - when a surveyor values a property at less than its asking price - is expected to further gum up the housing market as disputes over property prices increase.

"Down valuations" can slow up mortgage offers because they often prompt the seller to dispute the surveyor’s valuation with the lender.

Brokers have reported cases of surveyors knocking off as much as £150,000 from properties' asking prices.

They felt housing valuations were beginning to be "driven by fear" rather than by accurate data, as markets brace for a recession which could see up to 15 per cent dips in house prices.

John Baguely, director of technical, risk and compliance at Countrywide Surveying Services, said the extent to which the values of properties are not matching asking prices still “remains fairly static” and on “broadly similar levels” to before former chancellor Kwasi Kwarteng’s ‘mini’ Budget, which sent interest rates soaring.

“However, as markets change, we can probably expect the difference in opinion to widen,” said Baguely.

It will then be down to the flexibility and understanding of individual lenders to accept slightly older sales evidence.Helen Scorer, Pure Panel Management

Helen Scorer, operations director at fellow valuer Pure Panel Management, said this difference in opinions could be magnified by a slowdown in house sales.

In October, house prices in the UK fell for the first time since July 2021. The dip follows a spike in mortgage interest rates which took hold after Kwarteng’s ‘mini’ Budget at the end of September.

Property transactions have also slowed. In September, the provisional non-seasonally adjusted estimate for UK residential transactions was 112,370, down 30 per cent on last year. 

“The purchase market has been so buoyant over such a sustained period that there’s no shortage of comparable sales data and evidence to support valuation figures,” said Scorer.

“However, it’s prudent to point out that this volume of available up-to-date data could lessen in the coming months as the purchase market slows. 

“It will then be down to the flexibility and understanding of individual lenders to accept slightly older sales evidence, a process which was common during the early part of the pandemic.”

Scorer said lenders’ service levels have been “tried and tested” over the years, and that the lack of data will require them to work even more closely with valuers.

Baguely said brokers and sellers can avoid disruption from down valuations if they “keep expectations realistic, support valuation challenges and realise the professional valuation is an established framework.

“Whenever markets change, we always see the return of the difference in opinion between what a buyer/seller/remortgagor thinks the property is worth compared to what the evidence is saying the property is worth,” said Baguely.

“This is often labelled as a down valuation but, in my opinion, there is no such thing as a down valuation, it simply reflects a difference in opinion. One which is probably unsupported and driven by person specific factors, the other a researched and supported professional opinion of market value.”

Early signs of 'a gulf' in houses values

In August, brokers reported valuations up to 20 per cent short of agreed purchase prices, prompting them to open appeals with lenders to secure new valuations closer to sellers' expectations.

Two London-based brokers told FTAdviser they had experienced asking prices falling from £750,000 to a valuation of £600,000, and from £1.05mn to a valuation of £900,000.

Garrington Property Finders’ chief executive, Jonathan Hopper, said there was "a gulf between the reality of what what buyers are willing to pay and what surveyors are willing to let go through", and that this was "a widening gap".

Partly down to a lack of supply versus demand, estate agents have said inflated house prices are being driven, in part, by special houses getting lots of buyer interest, as well as by search engine optimisation on the big portals like Zoopla, Rightmove and On The Market which they say favour a 10 per cent uplift to asking price.

In a worst case scenario, if the housing market was to enter a recession and houses repossessed, lenders could theoretically sue the surveyors if a house price was at all inflated leading to a riskier mortgage on their books.

This is another reason brokers have cited as a reason for lenders' "cautious approach[es]" to down valuations.

ruby.hinchliffe@ft.com