‘Down valuation’ an obstacle for mortgage applicants

Down valuation an obstacle for mortgage applicants

Brokers say ‘down valuation’ an issue for up to 1 in 5

Mortgage lenders have tightened up the application process in the wake of the financial crisis and it’s tougher than ever to get a mortgage. The key concern is affordability, and applicants’ outgoings are being scrutinised in great detail. Millennials have been urged to give up little luxuries like take-out coffee to show they can afford monthly mortgage payments. But there is increasingly another obstacle to tackle.

The Mortgage Solutions website reports an increase in the number of ‘down valuations’ and says that this is affecting up to 1 in 5 mortgage cases. In one instance, the difference in valuation was a staggering £130,000.

Mortgage brokers have told Mortgage Solutions how frustrating they find the situation and how difficult it is for their clients. One told the website “There seems to be so much disparity from the values that come back” and another says the process is “random” and that valuations seem to be “pot luck”.

What is a ‘down valuation’?

When a surveyor values a property for the mortgage lender they will usually base the figure on:

  • *The sale price of similar properties in the local area
  • *The condition of the property
  • *Current market conditions in the area

When the surveyor takes all this into account, they may conclude that the property is worth less than the sale price. So even if you have agreed to pay £250,000 for a property, the valuation may come back as only £220,000 – a ‘down valuation’ of £30,000.

What this means for mortgage applicants

The amount you can borrow is usually based on a percentage of the property value.  So after a ‘down valuation’ the mortgage lender is likely to reduce the amount they will lend to you. Unless the seller is willing to reduce the sale price, you could find there’s a shortfall in your finances which makes it impossible to buy the property you want.

This also affects remortgage applicants who won’t get the value they hoped out of an existing property.

What to do if you get a ‘down valuation’

*You may be able to appeal against the valuation, but there is no guarantee of success.

*You may be able to negotiate the sale price with the seller. How willing they are to do this will depend on their circumstances.

*You could apply to another lender for a mortgage. You will have to pay for another valuation survey and there’s no guarantee that this will produce a higher valuation.

If the property you are buying is down valued during the conveyancing process and this affects your mortgage offer you must tell your conveyancer immediately. We cannot get involved in any mortgage discussion but it’s important to keep us informed of the situation.

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