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Getting a down valuation on the house you're buying could cause the purchase to fall through. We look at why down valuations happen, how to avoid them, and what you can do if it happens to you to keep your property transaction on track.
KEY INFORMATION
Down valuations happen when the surveyor undertaking the mortgage valuation for a lender values the property at less than the price the buyer has agreed to pay.
If this happens, the mortgage lender may offer to lend the buyer a lower amount. This means the buyer will need to plug the shortfall or renegotiate a lower sale price with the seller. In some cases, the lender may decide not to lend at all which means the buyer will need to find a new mortgage lender willing to lend or pull out of the purchase.
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Most homeowners sell their homes through estate agents and the asking price will be based on factors including the condition and size of the property, the location, and so on. And, as a buyer, it’s up to you to decide how much you’re prepared to pay for it when you put your offer in.
But if you need a mortgage to afford your home purchase, your lender will insist on having a mortgage valuation carried out. This mortgage valuation is for the lender’s benefit and is to ensure the property is worth the agreed sale price.
There are a number of reasons why down valuations happen, for example:
Unfortunately, down valuations usually don’t come to light until you’re fairly far along the buying and selling process. That’s because the mortgage valuation won’t happen until the buyer applies for a mortgage.
So it could easily be 4-6 weeks after an offer has been accepted before you find out the property has been down valued.
If the property you want to buy is down valued, the lender may offer to lend you a lower amount.
For example: You’ve agreed to pay £250,000 for a property with a 10% deposit of £25,000. In this case you’ll need a mortgage of £225,000:
| House price | Deposit amount | Mortgage amount |
|---|---|---|
| £250,000 | £25,000 | £225,000 |
But if the surveyor values the property at £240,000, the lender may instead say it will lend you 90% of £240,000, which is £216,000. When you add this to your deposit you’ll have £241,000 – £9,000 short of the price you agreed:
| House price | Deposit amount | Mortgage amount | Shortfall |
|---|---|---|---|
| £250,000 | £25,000 | £216,000 | £9,000 |
If the house is down valued, your lender may decide the risk is too high and withdraw the mortgage. This means you’ll lose the house unless your mortgage broker can find another lender that will be happy to support your purchase.
Home Buyers’ Protection Insurance can protect you in the event of your purchase falling down.
Cover for conveyancing, mortgage and survey costs, should your property purchase fall through.
What if the home you’re buying gets a lower than expected mortgage valuation? Here are your options:
Negotiating after a down valuation should be your first step. Go back to the seller armed with your mortgage valuation and ask if they’ll renegotiate the price.
If you’ve had a down valuation there’s a good chance the seller will face the same problem with a different buyer (unless they’re cash buyers). They may agree to reduce the price so your sale can still go ahead.
Down valuations can be challenged if you think they’re wrong. However, you’ll need to present strong evidence in the form of three recent, comparable house prices that have sold at the same amount. Start by researching local sold prices on the Land Registry. The estate agent might be able to help. Or, if the down valuation was due to the fact work needs to be done to the property, this can be challenged too if you think mistakes have been made with the figures.
KEY INFORMATION
Our late consumer journalist Christine Toner successfully challenged her lender’s valuation. She said, ‘Our lender asked us to provide independent roof and damp and timber reports. After doing so, we were told the bank would be reducing our mortgage by almost £10,000 because of works needed to the property,’
But the figures didn’t add up: the roofing report stated the roof might need work in 15 years at a cost of £3,800. While parts of the flat roof needed immediate work that would cost £550 and the timber report said work costing £558 was required. After challenging, the underwriter eventually agreed that there was no basis for £10,000 being retained and reduced the figure to £1,000.
So if something looks wrong to you, question it.
You may be able to get around the problem of a mortgage down valuation by choosing another mortgage product with a higher loan to value.
Using the above example to illustrate, if you can find a 95% mortgage on the £240,000 mortgage valuation price, you would be able to borrow £228,000. But you’ll usually pay a higher mortgage rate on a 95% mortgage.
Another option is to try a different lender in the hope you’ll get a different result. Although there’s no guarantee their opinion will be any different. And you might end up with the same surveyor. Again, it’s a good idea to speak to a fee-free mortgage broker for advice on this.
Get fee free mortgage advice from our partners at L&C. Use the online mortgage finder or speak to an advisor today.
Do you have savings you can use to plug the shortfall? Or family members who are willing to give you the money you need? There are things you need to be aware of if you use a gifted deposit. Read our guide Gifted Deposits Explained to find out more.
If none of the above measures work, you may have no option but to pull out.
KEY INFORMATION
Even if you can go ahead and buy at the original purchase price, you should stop and reflect on whether to proceed or not when you get a mortgage down valuation.
If you’re planning to live in the property for a number of years you may be happy paying what might be over the odds because you expect the property to increase in value over time. But if you’re not sure how long you plan to live there, or if you’re considering purchasing a buy to let as an investment, you may wish to reconsider your purchase.
If a house you want to buy is valued at £0 it doesn’t mean the property is worthless. This can happen when a property may not meet the lender’s lending criteria or if further information is needed.
And if you still want to buy the property that has been given a £0 valuation for defects that a mortgage lender is not able to see past, a bridging loan may be the answer. This happens a lot with investment properties if the lender doesn’t deem the property to be rentable condition. For example, this could be the case if the property is dated or has problems, like damp or spray foam roof insulation.
By taking out a bridging loan you can buy the property and then once the work has been remedied you can then take out a mortgage on the property instead.
Use the experienced team of specialist brokers at Chartwell Funding for FREE advice when securing your bridging loan. Click here or call them on 01454 809 300
For bridging loans, homeowner loans, bad credit mortgages and more speak to specialist lending brokers now.
If you’re selling a house and it 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 won’t or can’t proceed with the sale, you’ll need to find a new buyer. While other buyers may face similar mortgage valuation issues, if you can find a cash buyer who doesn’t need to get a lender involved, your current down valuation won’t be an issue.
Alternatively, if the down valuation was a result of problems with the property you may choose to pay to fix them. See our 12 tips to making your home more valuable.
Or you may prefer to wait it out to see if the property increases in value. However, there’s a risk your property could go down in value rather than up.
‘Remortgage borrowers will often run the risk of facing a down valuation as we can all be prone to attributing as positive a value to our home as possible,’ warns L&C’s David Hollingworth. ‘Just as it makes sense for sellers looking to attract buyers, it’s important for remortgage customers to be realistic in the likely value when remortgaging.
Need advice on remortgaging? Get fee-free expert advice from mortgage brokers L&C now
For example, if you think your home is worth £250,000 and you have an outstanding mortgage amount of £200,000, you’ll have equity of £50,000. If you are remortgaging to move, this is the equivalent of a 20% deposit.
However, if the lender’s survey gives a value of £240,000, this means you’ll have £40,000 equity. This is the equivalent of around a 17% deposit. And it would result in you needing a higher loan to value mortgage which may reduce your choice of lenders and may mean paying a higher rate too.
Before you apply to remortgage you can get an idea of how much your home is currently worth by using online valuation tools. It’s a useful way of getting a realistic idea of comparable property values, as they take information from the Land Registry Database to list actual sales. You could also look at current asking prices of nearby property but that could be a more optimistic figure.
Use our free instant online home valuation tool to get an idea of what your property is worth.
Down valuations on new build properties can be more common. There’s usually a new build premium when you buy a new build and its value will typically depreciate the moment you move in. And if you plan to sell in the next year or so you may not get back what you bought it for.
If you get a down valuation on a new build property, your options will depend on what stage of the buying process you are. You should always make sure your new build mortgage has been approved before you exchange and pay your deposit because the offer you’ve made on the property becomes legally binding at that point. So if you pull out of the purchase after exchange, you’ll lose your deposit and the seller can sue you for breach of contract.
Read our Top tips for buying a new build guide
Looking at how to avoid down valuations? Here are some useful tips from Paula Higgins, Chief Executive of the HomeOwners Alliance.
To reduce the risk of falling victim of a down valuation buyers should be wary of offering over the odds on a property. And sellers should be realistic about the sale price too.
Paula says. ‘If the vendor needs to sell promptly, without unnecessary delays, then they need to talk to their estate agent about setting a realistic – not optimistic – sale price.’
Read our guide on What price should I sell my house for?
Sealed bids can also lead to down valuations. With sealed bids, you submit your offer in a ‘sealed envelope’ by a set time and date. This can lead to buyers offering too much to try to get the winning bid. In turn this can inflate prices that don’t reflect what similar properties have sold for and could result in a down valuation.
Read our guide Sealed bids: Everything you need to know
As a down valuation may well lead to the purchase falling through, you might want to consider getting Home Buyers Protection Insurance. From just £69, it allows you to claim back some of your conveyancing fees, survey costs/ valuation fees and mortgage/lender fees in the event of the purchase falling through. If, for example, you receive a property valuation less than 90% of the accepted offer, and can no longer proceed with the purchase, you’ll be covered. See Is Home Buyers Protection Insurance something I should consider?
When it comes to down valuations RICS says that ‘in reality there is no such thing as a down valuation’. It says that what’s described is the difference between worth to the individual buyer/seller and market value.
RICS says ‘the market value is usually based on comparable market evidence, which will typically refer to recent transactions of similar types of properties in the local area, other economic indicators and also the professional’s knowledge of the local market and economy.
Not necessarily. If you have a Nationwide down valuation, it doesn’t mean for example you’ll definitely get a NatWest down valuation or a Halifax down valuation. However, bear in mind some lenders may use the same surveyors in which case the valuation is likely to be the same.
When you buy a house, if you need a mortgage your lender will insist on having a mortgage valuation carried out. This mortgage valuation is for the lender’s benefit and is to ensure the property is worth the agreed sale price.
And down valuations are when the mortgage surveyor values the property for less than the price the buyer has agreed to pay.
HomeOwners Alliance Ltd is registered in England, company number 07861605. Information provided on HomeOwners Alliance is not intended as a recommendation or financial advice.
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