22nd September 2022

Are down-valuations
on the up?

The average house price in the UK increased by 7.8% in the year to June 2022, £20,000 higher than June last year[1]. With that comes reports of increases in under-valuation of property. But whose fault is it? Is it surveyors being overly cautious or are sellers to blame for trying their luck with an exaggerated asking price?

Your opinion on that will depend on which part of the market you work in. In June Mojo Mortgages said that as of April 2022 down-valuations were up to 12.8% from 10.4% during the same month last year[2].

Their view is that with such unprecedented demand for property over the last couple of years, sellers are trying their luck, ignoring the recommendation of their estate agent, and setting their asking price much higher. Supply is outstripping demand, competition is fierce, so there’s a chance the seller may be successful.

The surveyor viewpoint

Of course, that’s ok until the lender sends a surveyor to value the property and they value it well below the asking price. And in the current economic climate lenders and surveyors are naturally cautious.

The Royal Institution of Chartered Surveyors (RICS) say that there is no such thing as down-valuation, it’s a myth, and can simply be described as the difference between the worth of the property to the individual buyer/seller and the actual market value[3].

And as they point out they have a duty to inspect the condition of a prospective purchase based on potential issues, and report that to the lender. That valuation can differ from the market value recommended to the seller by the estate agent, who will use their knowledge of the local area and its recent transactions amongst other things.

Why are down-valuations a problem?

Down-valuations slow down the sales process and they can do that in several ways:

  • The buyer may suddenly find they cannot get a mortgage for the amount they want. That can mean a stand-off between buyer and seller. Either the buyer finds the extra money from their own pocket, or the seller must drop their asking price. If neither happens the sale will fall through.
  • If the down-valued property is in a chain, then there can be a knock-on effect where the seller who has had to drop their asking price will also need to lower their offer on the property they intend to buy, and so on.
  • First time buyers and those with a high LTV mortgage find down-valuations more of a problem as they have little or no equity to help make up the difference.

The best option for everyone is to be able to pinpoint the value of a property right at the start of the mortgage journey.

What are the options for homeowners?

Homeowners trying to sell a property that has been down-valued have several options. They could try and find a new buyer with a different lender who may view the home as being worth what the seller wants for it; the seller could lower the asking price; they could spend money to address the problems the surveyor has picked up; and they could wait and see if property values rise in their area, although of course, they could go down too.

Buyers too have options. They could try using a different surveyor/lender; they could renegotiate and try a lower offer; they could secure a loan for the shortfall; and if they are lucky enough to have savings, they could utilise those to cover the extra cost and avoid more expenses.

Or just use tech!

For mortgage advisers, the failure of a mortgage application because of a down-valuation is frustrating and a waste of their time and resources. And they’re left with an unhappy client. The best option for everyone is to be able to pinpoint the value of a property right at the start of the mortgage journey.

Hometrack are the leading provider of automated valuation models (AVMs) in the UK. They provide instant and accurate property valuations which have been used by lenders since 2002. In fact, over 80% of the top lenders in the UK now use Hometrack, who perform 50 million valuations each year[4].

The good news is Mortgage Brain use Hometrack integration in Sourcing Brain. That means advisers can tell their customers with confidence the exact value of the property they want to buy, avoiding hold-ups and disappointment further along the buying process. No more time wasted on failed applications, an uplift in closure rates, and more customer confidence in the adviser’s service.

Find out more about the Hometrack integration in Sourcing Brain and if you’re not already a user, sign up for a 30-day free trial

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