A down-valuation is where a buyer’s mortgage surveyor values a property for less than the price agreed for the sale. The difference between those two figures is the down-valuation.

A recent poll by Countrywide among mortgage professionals found that more than half (52%) thought down-valuations are either ‘very or quite prevalent’ in 2022.

This creates a problem for both home buyers and sellers. If you can’t get a lender to value the house at its agreed purchase price, either the seller has to drop the price, the buyer has to find more money, or the purchase collapses.

We’re a national financial adviser company and in our experience, down-valuing is certainly more prevalent in London and the surrounding areas. We are seeing huge swings in valuations between lenders and the companies they use to carry out their valuations. We are seeing down-valuations in around 30% of applications.

An example of how down-valuing can hurt a purchase came across our desk recently for an application submitted with Clydesdale Bank.  The agreed purchase price was £675,000 with at least ten offers for the property – according to the estate agents – but the valuation was returned at £620,000.

The client tried another lender, as suggested by the estate agent. The second application was submitted with Halifax, which used the same survey company. This time, the valuation was returned at £660,000, still an under value, but £40,000 more than the first surveyor. At this point, either the seller had to lower their price or the client had to pull out.

Estate agent issues

I do appreciate that an estate agent is trying to get the most amount of money for their client, but when two lenders undervalue, shouldn’t the estate agent be advising the seller that this is becoming very common and suggest they accept the slightly reduced valuation to proceed with the sale?

We see the same property – that has been undervalued five times – still marketed with the buyer encouraged to ‘give it a go.’

We know that some lenders have instructed their surveyors to value realistically, meaning they are very aware of the implications of very high values and then a potential fall in house prices.  One high street lender stated it is not comfortable with the risk of having lots of first-time buyers in negative equity again, which is sensible for all involved.

What should you do?

Your first action should be to speak to an independent mortgage adviser who knows the market and can do all the legwork for you. However, if you’re a buyer who is handling it personally and the lender down-values:

• Try and get the seller to lower the price, if they say no;
• Try a different lender;
• If the second lender down-values too and the seller won’t budge then either look for alternative funding or you will have to pull out.

Keep in mind that, unless the home is being purchased for cash, the purchase price isn’t being agreed until valuation stage. Meanwhile there are government schemes that may be useful for new builds but for older properties this isn’t an option.

I recently handled a case where this came into play. We were handling a buy-to-let mortgage for an experienced landlord. The property was marketed for £315,000.  There was so much interest it ended up going for £350,000. The survey was returned at £315,000 and the landlord ended up paying the extra £35,000 himself.

Importantly, remember not to panic. Here are three tips to keep in mind when you’re buying a property:

1)  Be disciplined. For many buyers, but especially first-time buyers who usually have a limited budget, stick to it, and don’t overstretch yourselves, especially with interest rates on the rise. It’s all well and good having the house of your dreams but you must be able to afford to live in it too.

2)  Don’t get into a bidding war. Only go to the maximum amount you are comfortable with, don’t use all your savings or your emergency fund so when you move, you are unable to support any potential issues like replacing a boiler without borrowing.

3)  Look just a few miles out from the areas you wish to live and often you can buy a cheaper property of the same size and standard.

If you can follow these three tips your chances of finding a great value property, and avoiding down-valuation, increase significantly.

Zane Groves is mortgage adviser at LightBlue UK