Mortgage Experts Warn: Home Purchases Jeopardized by Surveyor Down Valuations

The property market is seeing an increase in the number of homes being appraised for less than their sale price by surveyors, leading to disrupted transactions and significant impacts on individuals, according to mortgage professionals.

It is speculated that the anticipation surrounding the details of the upcoming budget is causing surveyors to adopt a more conservative approach, resulting in lower property valuations than the prices initially agreed upon by buyers and sellers.

Jonathan Alvarez Herrera from Ayla Mortgages reports a noticeable rise in the frequency of reduced valuations in the mortgage sector over the past few months. He notes that the extent of these reductions typically averages around 10%, although this can vary depending on the geographical area.

Herrera highlighted that the regions of London and the southeast are particularly prone to lower valuations due to the higher property values in these areas.

Recent data from the Official Land Registry indicates that UK house price inflation was at 2.6% for the year ending in September. However, this overall figure masks significant regional disparities, with London experiencing a price decline of 1.8% over the same period. Additionally, property website Rightmove has noted that the speculation surrounding the budget is creating uncertainty throughout much of the property market.

A down valuation occurs when a surveyor, working on behalf of a mortgage lender, assesses a property and determines its market value to be significantly lower than the price agreed upon in the sale. This situation can lead to several possible outcomes: the buyer might renegotiate the price, seek a valuation from another lender, or in some cases, have to increase their mortgage loan or abandon the purchase altogether.

Herrera recently witnessed a property that was down valued from £3.1 million to £3 million. Although the reduction was not substantial in percentage terms, the buyer could not afford the additional £100,000 deposit and the deal collapsed as the price could not be renegotiated.

Patricia McGirr of Repossession Rescue, which assists people facing financial difficulties, stated that down valuations are causing significant disruptions in transactions and negatively affecting lives, especially in London where even the same surveyors are reducing property values within months.

McGirr described the valuation process as a “postcode lottery,” affected by factors such as lender caution, local market sentiments, and budget-related apprehensions, leading to widespread chaos and stress for sellers and developers.

She recently dealt with two cases where properties were down valued, including one in London by as much as 17%.

Vijay Rabadiya from The Mortgage Vine noted that most down valuations are moderate, typically ranging between 2% and 5% below the agreed purchase price. He pointed out that new-build flats, unique or rural properties, and homes in slower southern markets are particularly subject to intense scrutiny from surveyors.

Other brokers have reported valuations ranging from 5% to 15% below recent comparable sales prices.

The Royal Institution of Chartered Surveyors (Rics) clarifies on its website that what is often referred to as a ‘down valuation’ is actually a discrepancy between the perceived worth to the buyer or seller and the property’s market value. They emphasize that in most cases, the client is the lending institution, not the individual obtaining the mortgage.