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What Is a Down Valuation?

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Whether you’re buying or selling a property, down valuations can cause serious issues. If you need a mortgage to purchase a house and the property is down valued, it could ruin your purchase.

If you’re selling, and this happens to your buyers, your sale may fall through. Down valuations can also cause problems if you’re remortgaging.

This article will look at what buyers and sellers can do after receiving a down valuation, as well as how to try and avoid them.

Table of Contents

What is a down valuation?

Before getting a mortgage approved, your lender will need to assess the value of the property you want to buy. This is for two reasons: to make sure it’s worth the amount you say it is and to calculate your Loan to Value (LTV) ratio, which affects the interest rate they offer.

Your lender wants to be sure of the property’s value to protect themselves from financial loss in case you can’t keep up with the mortgage payments and they have to repossess the property.

Two methods are available for valuing your property: an in-person inspection by a qualified surveyor or a desktop valuation using an Automated Valuation Model.

The option chosen will depend on the number of comparable recent sales, how unusual your property is, and any concerns about the agreed sale price. You may also opt for a property survey, in which case the surveyor can do a valuation for the mortgage company.

If you’re buying the property with cash and don’t need a mortgage, it’s still a good idea to get a survey and valuation to make sure you’re making a wise purchase.

what is a down valuation
Given the market correction we are currently experiencing, one may assume that down valuations will occur less often.

Down valuations – how common is it?

According to research, down valuations have been on the rise in recent years, even doubling since the outbreak of the Covid-19 pandemic, with 12.8 percent of property purchases being downvalued in April 2022.

Given the market correction we are currently experiencing, one may assume that down valuations will occur less often. Initially, lenders were anxious for the post-Covid bubble to burst, leading to the rise in down valuations.

However, due to the gradual nature of the market correction, lenders are still uncertain where prices may end up. Therefore, it is likely that their caution will remain in place for the foreseeable future.

Why are properties being down valued?

The property market has been highly active in recent years but is now cooling off. With rising interest rates and inflation, many mortgage lenders are being especially cautious when it comes to homeowners’ ability to pay more expensive mortgage payments, as well as other increasing costs.

Experts anticipate that property prices will continue to decrease in the next few months, and mortgage providers are determined to protect themselves from any potential losses that may occur if repossessions increase in numbers, similar to the 2008 financial crisis.

It appears that their precautions are justified, as the financial data indicates that repossessions are already growing.

UK Finance reported that 630 homes were taken back from April to July last year, compared to 580 properties in the first three months of 2021 and 390 repossessions in the final quarter of that same year.

Down valuation advice for buyers – what to do if your mortgage company down-values the house you’re buying.

Example of a down valuation:

Agreed sale price

£300,000

Cash you have available for deposit

£45,000 (15%)

Mortgage applied for

£255,000 at 85% LTV

Down valuation

£270,000

Mortgage available with same product

(85% LTV) £229,500

Deposit required to buy at agreed selling price

£70,500

Shortfall – £25,500

£25,500

It can be tricky to find advice on how to handle a down valuation when buying a home, even though it’s more common now than ever. If your mortgage lender has down-valued the property, you’re in the process of buying.

  1. Your first step should be to try and renegotiate the sale price with the seller. Other potential buyers would likely have this same issue, so it’s in their best interest to lower the sale price to reflect the down valuation.
  2. If they’re not willing to lower the price, or if they don’t lower it enough, there are other options available. Take a look at your finances to see if you can still afford the property with a lower borrowing amount. Maybe you have access to extra money that could cover the difference? You can also speak to your mortgage lender about changing your product. 
  3. Alternatively, you can look into other lenders – a different one may have a different opinion on the value of the property. A mortgage broker would be a great place to start, as they would know which lenders offer the most flexibility. 

Tips for negotiating after down valuation

If you’re experienced with mortgage down valuation and want to negotiate with the seller, these tips can help.

  • Approach the conversation to find a mutually agreeable solution. Explain the situation to the seller and let them know you’re still keen to move forward if a solution can be reached rather than demanding that the price be reduced to the new down valuation figure.
  • Use the estate agent to assist in the negotiations. Their job is to ensure a successful sale, so explain the situation and make it clear what you need to proceed with the sale.
  • Let the seller know that if your mortgage lender has down-valued their property, it’s likely that other lenders and surveyors will do the same. If they are unable to reach a workable compromise with you, they are likely to experience the same problems with any other buyers.

Down valuation – what to do if your buyer’s mortgage gets refused?

If your buyer’s mortgage lender has down-valued your property, your estate agent should be your first port of call. It is important to consider why the lender has valued the property lower than the estate agent’s appraisal.

If the lender has identified something within the property that has caused the value to decrease, such as a repair that needs to be done, you may be able to get the work done and have the property revalued.

Alternatively, if this will take too long, you may need to accept a lower sale price than what was originally agreed, in line with the new down valuation figure.

Property been down valued when trying to remortgage
Down valuations can be a problem when it comes to property sales, but statistics show that 15.4% of re-mortgages are also affected.

Property been down valued when trying to remortgage

Down valuations can be a problem when it comes to property sales, but statistics show that 15.4% of re-mortgages are also affected.

This can have a big effect on the amount you can borrow and your Loan to Value ratio (LTV). Higher LTVs mean higher interest rates and, therefore, bigger repayments.

If you’re not able to secure the amount you need through re-mortgaging, there are a few different options:

  1. First, speak to your current lender to see if you can challenge the valuation or look at higher LTV borrowing.
  2. You could also look into re-mortgaging with another lender – a mortgage broker can help you find the best option.
  3. Lastly, if you need additional funds, you could look into a bank loan to make up the difference.

How to avoid down valuation

If you want to prevent having a property that is devalued, it is essential to price your house realistically when it is listed.

Estate agents have been known to inflate the value of properties to get the listing, so make sure you get at least three different appraisals and inquire about comparable sales in the area that back up the evaluation they give.

You can also do your own independent research using the sold price information available on some of the leading property websites such as Rightmove and Zoopla.

When you are buying a property, it is important to avoid a down valuation by not getting drawn into any bidding wars with other buyers. These can often push the price of the property higher than its initial evaluation.

Do your own research to decide what you think the property is worth before making an offer, and don’t be convinced to pay more than that amount.

A down valuation can be very frustrating, whether you are purchasing, selling or re-mortgaging, but it is important to keep in mind that there is usually a resolution if you take the time to explore the available options.

Down valuation advice for sellers

If you’re selling a house that has been down-valued, you should be prepared to lower your asking price if the alternative is losing your buyer.

If you’re convinced the property is worth the sale price and the buyer can’t or won’t proceed, you’ll need to find a new buyer. You may be able to find a cash buyer who wouldn’t need to get a lender involved, which would bypass the down valuation.

Alternatively, if problems with the property caused the down valuation, you could pay to fix them. Or, you could wait to see if the property increases in value; however, there’s a risk it could go down instead of up.

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