What to do if your house gets down-valued by the bank

Picture this: you’ve just secured the home of your dreams, and you’re ready to pay the full asking price for it. However, your bank has determined that your dream home isn’t worth the full price-tag, and therefore won’t lend you enough money to purchase it – this is the dreaded down-valuation.

It’s a situation no one wants to find themselves in and can lead to property dream heartache and chains collapsing. It’s also more likely than you’d assume, with rising interest rates causing the number of down-valuations in 2023 to increase. It is estimated that 400,000 properties were down-valued in 2022, albeit only by between £5,000 and £10,000 in most cases. Surveyors remain cautious when valuing properties as a result of such interest rate rises, causing valuation discrepancies. So what do you do if it happens to you?

Here we take a look at why properties can be down-valued and the options available if your lender says no to lending you the full amount you need.

What is down-valuing?

Down-valuing is where a surveyor acting on behalf of a lender assesses a property and says that it’s worth significantly less than the price agreed by the seller and buyer. In other words, the lender won’t provide a loan to cover the seller’s full asking price, because their valuation has revealed the property is considerably less than what the seller is asking for, and what the buyer has agreed to pay.

When does it happen?

Down-valuing usually happens when you’re selling your home. It’s when the surveyor carries out their valuation and disagrees with the seller about how much the property is worth.

For example, you may have found a buyer and agreed with them a sale price of £500,000. It is then down to the lender’s surveyor to find evidence to substantiate the asking price. The lender will want reassurance that the property is worth what you want to borrow for it. But if the surveyor then values the property at, say £450,000, that’s £50,000 less than the sale price agreed, and a down-valuation of 10%, which can leave you (and your buyer) in a tricky situation.

What does a down-valuation mean for sellers?

As a seller in the current market, you may have had high hopes of commanding a high price for your home, given the current levels of demand. But with many experts sharing gloomy financial forecasts you may find that lending institutions, banks and brokers are more cautious.

Ever changing economic factors can see hopes of maximum values severely dashed by a down valuation – it’s important to note that between from Jan 2020 to Jan 2022 almost 45% of properties were down valued, so take heart that it doesn’t mean that the property isn’t worth the value you’d hoped, just that the lender isn’t willing to lend that particular value.

Why does down-valuing happen?

As a seller in the current market, you may have had high hopes of commanding a high price for your home, given the current levels of demand. But those hopes could be severely dashed if your home is down-valued.

There are a number of reasons why a down-valuation may occur:

• Some owners will have an unrealistic idea of the value of their home. Alternatively, they may be over-optimistic about the amount of value their renovations have added to their property, and will put an over-ambitious price tag on their place.
• Estate agents desperate to get sellers onto their books may provide inflated valuations, which may later be rejected by professional surveyors providing their own valuation to lenders.

“97% of Centrick instructions achieve 97% of the full asking price or more”

• Lenders concerned about over-inflated prices may be telling valuers to be cautious.
• During the pandemic, some surveyors have been so overstretched, they have been required to value properties outside of their usual area of expertise. It is possible that some may have been unfamiliar with the nuances of the local markets.
• Increasingly, some banks have used so-called ‘desktop valuations’ meaning the surveyor hasn’t actually visited the property. The surveyor may not even be aware of works or improvements that have been carried out. If this is the case, with restrictions eased, your buyer may now have an opportunity to ask the surveyor to visit the property in person to re-evaluate their decision.

How common are mortgage down-valuations?

Figures suggest that mortgage down-valuations are quite common. In fact, research by The Times indicated that 400,000 properties were down-valued last year, with most properties suffering a down-valuation of between £5,000 and £10,000. According to the findings, homes valued between £400,000 and £500,000 are most likely to experience mortgage down-valuations.

Why are down valuations happening a lot now?

The volatile economy – in no small part due to the perfect storm of the cost-of-living crisis, inflation and residual effects of the pandemic – has left mortgage lenders nervous. This uncertainty has led to an increase in properties being down-valued. In some cases, down-valuations are up to as much as 20%.

House down-valuation when re-mortgaging your property

While down-valuations are most commonly associated with selling (or buying) a home, they can also prove problematic if you’re looking to remortgage and switch to another mortgage deal without moving home.

Typically, homeowners remortgage because their current arrangement – such as a two-year or five-year fixed-rate mortgage – has come to an end. If you want to do this, a valuation must be made.

But if the lender determines your home is worth less than you believe it is, your application to move to a new lender could get rejected. In some cases, there may be little option but to move onto your existing lender’s standard variable rate (SVR) which could mean a hefty jump in your monthly mortgage repayments.

How are homes valued?

Properties are valued based on a number of factors. They include:

• The overall condition of the house or flat – along with the size (‘square footage’) and the amenities it has (for example, the number of bedrooms, if it has an office or garden etc)
• The sale price of at least three similar local properties in the last six months. This gives an indication of the amount buyers are willing to pay for homes in your area
• Knowledge of supply and demand in the local area
• An understanding of the prevailing market – how hot or cold it is, and which way it’s moving

What to do if a surveyor down-values your house

If you’re looking to sell and your home gets down-valued, here are some things you can do:

• Find a new buyer with a different lender willing to value your home at the price you think it’s worth
• Talk to your buyer about changing their lender
• Be willing to lower the asking price
• Spend money to address the reasons for the down-valuation
• Wait to see if the property rises in value. But by doing this, you risk losing the interested buyer. There’s also a risk your property could go down in value, rather than up

What can you do if down-valuing happens to you as a buyer?

If you’re hoping to buy, but then your lender down-values your home, here are some tips to help you avoid missing out on your dream house:

• Get the property valued again by a different surveyor acting for a different lender
• Try to renegotiate the price with the seller – or simply lower your offer
• Get a loan for the shortfall
• Increase your deposit to cover the cost of the devaluation. However, this may mean dipping into savings meant for other costs

While down-valuations are far from ideal, there is a way out, so don’t lose hope if this happens to you. With a little effort and perseverance, the sale (or purchase) could still go through. For more information on mitigating down-valuations in 2023, and avoiding the potential damage of rising interest rates, contact our team below: