Down valuations: 6 things to do if it happens to you

When you’re buying a house down valuations can cause major problems. We look at what to do if your property is down valued and how to avoid it.

Rebecca Gamble Consumer Journalist

Whether you’re buying or selling a property, down valuations can cause serious headaches. That’s because if you need a mortgage to buy a house and the property is ‘down valued’ it might scupper your purchase. And 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. We look at what buyers and sellers can do after getting a down valuation and how you can try to avoid them.

What are down valuations?

Down valuations are when the mortgage surveyor values the property for less than the price the buyer has agreed to pay.

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 (the bank or building society) 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.

Why do down valuations happen?

So why do down valuations happen? They happen all the time, but tend to hit the headlines when they happen more frequently.

Many mortgage brokers say waves of down valuations are caused by pressure from cautious lenders, fearful that a house price slump is coming.

And with the increased cost of mortgage borrowing and forecasts that house prices will drop in 2023, many people are asking if we are about to see more down valuations. Well, not necessarily, says David Hollingworth of award-winning fee-free mortgage brokers L&C. ‘Down valuations occur in any type of market and many will assert that they are correct valuations!’

‘So it doesn’t necessarily follow that there will be a higher incidence of down valuations on the way. However, it may be a little harder for sellers and those remortgaging to put a value on their property when the market is in something of a state of flux compared to the boom over the pandemic.’

Other reasons why down valuations happen include:

• If the seller has overestimated the value renovations have added to their property.
• If problems are flagged on the mortgage valuation survey.

When do I find out about a down valuation?

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.

What happens when I get a down valuation?

Down valuations are when the surveyor who assesses the property decides its market value is lower than the price you’ve agreed to pay. With down valuations you may find the lender says it will lend you a lower amount. For example, you may have 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.

But if the surveyor thinks the property is worth £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.

Alternatively, with down valuations 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.

How much are homes usually down valued by?

Research from property buying firm HBB Solutions found that sales subject to a down valuation are being hit by an average of a 2.8% reduction. Based on an average UK house price of £286,397, this means there’s an average reduction of £7,978. But this is just an average, and down valuations can be much higher or lower.

In a market where house prices are adjusting, buyers can prepare for an increased risk of down valuations and reduce the impact of a failed transaction on your finances. As a down valuation may well lead to the purchase falling through, you might want to consider getting Home Buyers Protection Insurance. For just £60, 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?

Down valuation advice for buyers

What if the home you’re buying gets a lower than expected mortgage valuation? Here are your options:

1. Negotiating after down valuation

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.

2. Challenge down valuations

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.

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.

3. Choose a different mortgage

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 95% mortgages are getting increasingly hard to find.

It’s even more important than ever to speak to a mortgage broker for advice when assessing your options. Get advice from fee free mortgage brokers L&C today.

4. Try a different lender

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.

5. Make up the shortfall

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.  

6. Pull out of the transaction

If none of the above measures work, you may have no option but to pull out.

Indeed, even if you can push forward with 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.

House valued at £0 – How a bridging loan can help

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.

We’ve partnered with the experienced team of specialist brokers at Chartwell Funding to bring you FREE advice when securing your bridging loan. Click here or call them on 01454 809 300.

Down valuation advice for sellers

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.

Down valuation and your remortgage

‘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 our partners at L&C now

‘A down valuation can still have repercussions as it could increase the loan to value, which could affect the eligibility for a certain deal so being realistic should help to pinpoint the right mortgage.’

So how could a mortgage down valuation affect how much you can remortgage?

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.

How do I value my house myself?

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 valuation on new build property

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

How to avoid a down valuation

Looking at how to avoid down valuations? Here are some useful tips from Paula Higgins, Chief Executive of the HomeOwners Alliance.

1. Set a realistic sale price

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?

2. Don’t get suckered in during sealed bids

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

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