October 25, 2013 6:06 pm

Sellers at risk of ‘down-valuations’

A Foxtons sold sign appears on a chelsea street this aternoon.©Charlie Bibby

The number of homes being marked down in price by surveyors could start to increase over the next year, experts have warned, as signs emerge that homeowners are becoming more confident about the value of their house..

Average asking prices for homes in London jumped by 10.2 per cent between September and October, according to figures published by Rightmove, the property portal, this week. The rise is the biggest monthly jump since the series, which measures what price sellers ask for their property rather than the final agreed sale price, began in 2002.

While the overall number of so-called “down-valuations” – where a surveyor instructed by a mortgage lender cuts the estimated value of a property – has fallen to its lowest since 2008, some believe this could soon change.

According to figures from Esurv, the UK’s largest surveying firm, 24 per cent of properties in England and Wales were down-valued in the third quarter of this year, compared with 26 per cent a year ago and 54 per cent in 2008. In Scotland, 29 per cent of properties were down-valued, compared to 39 per cent in 2008, while in Northern Ireland the figure was 45 per cent, down from 75 per cent five years ago.

However, some mortgage brokers say they are starting to see more instances of down-valuations. Nigel Bedford of Largemortgageloans.com, the mortgage broker, recently had a client hit by two down-valuations.

The borrower was remortgaging their main residence in Guildford to release equity towards the deposit for a purchase of a holiday home in Cornwall. The main residence was down-valued from what was believed to be a very conservative £800,000 to £700,000. The new purchase was then down-valued from the £850,000 agreed purchase price to £800,000.

“The clients decided to proceed with the purchase at £850,000 as they thought it was a good price for the property, the separate full building survey did not identify any problems, and they basically disregarded the bank valuation which they thought was unduly cautious,” said Mr Bedford.

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Andrew Montlake of mortgage broker Coreco says down-valuations have been fairly low in recent months as they are not typically a problem when house prices are rising.

However, he believes there are signs of this “turning” now that vendors are beginning to respond to the hype around house prices and setting potentially “unrealistic” sale prices.

“A couple of deals agreed a while ago are being threatened by a vendor considering remarketing as they reckon they can get a higher level,” said Mr Montlake.

“No doubt with this news continuing we will start to see some more down-valuations, especially on the remortgage side with people thinking their property will be worth more than it is. Ten per cent growth has not happened in every postcode in London, let alone every region in the UK,” he added.

According to brokers, homeowners refinancing are more likely to be hit with a down-valuation than those purchasing a new home. “Most homeowners believe their home is worth more than a surveyor will value it at,” said Adrian Anderson of Anderson Harris. “When remortgaging, homeowners usually look at what similar houses are being marketed for, but this does not necessarily reflect what a surveyor would value it at.”

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Challenging a down-valuation has also become harder with some lenders. Last week, NatWest told mortgage brokers that they will not challenge property down-valuations in most cases, pointing out that the surveyors they use are professionals and operate under the Royal Institution of Chartered Surveyors’ standards.

Aaron Strutt of Trinity Financial, another mortgage broker, said most lenders allow borrowers to question a down-valuation and do not expect appeals to go directly through Rics.

“Normally, if you have a down-valuation it is possible to appeal the decision by providing comparable evidence, although the success rate is often very limited,” said Mr Strutt.

Homeowners looking to challenge a down-valuation need to do their homework. Virgin Money allows appeals to the valuation providing there are three comparable sales provided. Those sales must have occurred in the last three months. Halifax allows valuation appeals on purchase applications, but not on remortgaging where it uses automated valuations.

If the lender will not overturn the decision, then homeowners have the option of making another mortgage application in the hope that another surveyor will be used and take a different view. However, David Hollingworth of London & Country, the mortgage broker, warns incurs considerable extra expense and comes with no guarantees.

“Of course if it helps the purchaser renegotiate then it may not be as much of a problem – but whether they will budge will depend on how great the level of demand is,” said Mr Hollingworth.

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