Interest rates have risen for five months in a row, and are expected to go up further in 2022, could this risk mortgage lenders down valuing properties
Mortgage lenders are becoming more cautious as the cost of borrowing rises. High borrowing costs lead to lower house prices and lenders have a real concern that the over-heated market is pushing prices up to an unrealistic and unsustainable level. Many would-be-buyers are offering way over the asking price on some properties. While the buyer may accept that they have to pay a higher price to secure the property they want, their lender may not. Worried that that they may not recover their money should the borrower default, many lenders are down valuing the price of properties.
What is a down valuation?
Your mortgage lender will ask for a property valuation before loaning you the money. If the valuer believes the is worth less than your offer price, they will down value the property. For example, you make a successful offer of £250,000 for a property but the lender’s surveyor thinks the property is worth £240,000 – £10,000 less. This may cause difficulties with your purchase, as your lender may not now be willing to lend you the full amount required to buy the property and you will therefore need a larger deposit. If you don’t have it, the purchase will fall through unless the seller is willing to accept a lower offer.
What to do if the property you’re buying is down valued
If your lender down values the property you wish to buy and reduces the amount it is willing to lend you, you have a few options.
- Increase your deposit if you have the funds
- Ask the seller to lower their asking price.
- Pull out of the transaction.
You could try going to another mortgage lender, but there is no guarantee that they will agree to the higher valuation. In fact, there is a chance the lender could use the same surveyor, as mortgage companies typically commission independent surveyors who know the local market.
I’m selling a property, how does a down valuation affect me?
As a seller. you should be prepared to lower your property’s asking price if the alternative is losing your buyer.
If you really believe the property is worth your asking price, you should accept that you may have to find a new buyer however if one mortgage lender has down valued the property, it is likely others will and you may have to find a cash buyer or at least someone with access to a larger deposit.
I’m looking to remortgage, will a down valuation affect this?
If you want to remortgage – either with your existing lender or a new bank or building society, the process is very similar to buying a house with a mortgage therefore you may have a similar issue.
At the beginning of a remortgage, you will say what you think your property is worth. The lender will then do its own valuation, based on sold prices for similar properties in the area. The survey is for the lender’s benefit, to make sure it can recoup its loan if you cannot keep up with repayments and default on the loan.
Your lender may think the property is worth less than the amount you have given, and this may affect how big a loan it is prepared to advance.
I’m about to make an offer on a property, what should I do?
In a fast moving market it is difficult not to go over the top and make a wild offer just to get the property, however, to avoid this you should do a bit of research in advance. Check out sold prices on Right Move and Zoopla. This will tell you what similar properties have gone for locally. You will also be able to see when the seller bought the property and how much they paid for it.
Be prepared for a down valuation, if your lender down values the property, how much more money can you raise for a deposit, could you borrow from family and friends temporarily to get you over the line.
If the answer is no to the above, be prepared to walk away. A house and mortgage is a long term commitment, don’t pay more than you can afford.