I am a first-time buyer, and have just made an offer on my dream property.
The seller accepted, and I began my mortgage application. I had already passed the lender’s affordability checks for the size of loan I require.
However, I have now hit a bump in the road. A surveyor visited the property to carry out the mortgage valuation last week, and I was later told that it has been valued at less than what I agreed to pay for it.
With the property ‘down valued,’ the bank is no longer able to offer me the mortgage amount I need in order to purchase the house.
Can I appeal the valuer’s decision? And if not, what should someone do in my position? Via email
Surveyors are legally obliged to value a property on behalf of the mortgage lender as part of the mortgage approval process
Ed Magnus of This is Money replies: The mortgage valuation can feel like another element of the house buying process that is entirely out of a buyer’s control.
Typically, down valuations impact remortgaging homeowners, who often overestimate the value of their home in the hope of moving to a better mortgage deal or releasing cash to put towards home improvements.
But on occasion they can impact property transactions, placing the entire sale in jeopardy.
When buying with a mortgage, the lender will always carry out its own independent valuation on the property.
This is to check the property is something that fits within its lending criteria, and that the amount being paid represents market value.
In some cases, the value of a property can be automatically calculated using data on nearby properties and recent transactions, which eliminates the need for a surveyor.
But in many cases, and particularly in more rural areas, where comparable data is lacking, a surveyor is often required to carry out a more thorough check. That could mean online research, a drive-by inspection, or actually entering the property.
In either case, the surveyor coming up with a figure that is out of kilter with what the buyer has agreed to pay will cause issues.
What are my options after a down valuation?
As a buyer:
1. Negotiate a new price with the seller that both parties can work with
2. Find a new lender that will offer the mortgage amount you need
3. Increase the size of your deposit from your savings
4. Bridge the gap with money from friends or family
5. Walk away and find a new property
As a seller:
1. Consider lowering the sale price or meeting somewhere in the middle
2. Encourage the buyer to try another lender with different lending criteria
3. If the numbers don’t work for you, get estate agents or solicitors to negotiate reductions or new deals up the chain
4. Put your property back on the market and try to find a new buyer who can offer the required amount
5. Look for a cash buyer
For example, if a buyer was purchasing a property for £220,000 with a mortgage covering 90 per cent of the value, the mortgage amount required would be £198,000.
If the valuation then came back at £200,000 for example, the buyer’s 90 per cent mortgage would now only cover £180,000 of the purchase price and the buyer having to make up the difference themselves if they wished to stick with the same mortgage deal.
The best solution may be for a buyer and seller to renegotiate a new price based on the mortgage valuation.
However, if the seller is not willing to renegotiate, the buyer will need to make a decision over what to do next.
It is possible to appeal a down valuation, but in order to do so you will need at least three examples of comparable properties to the one you are purchasing, all of which have recently sold, to demonstrate that the original price agreed was correct.
Even if you get this information, the chances of an appeal being successful are not high – even with strong supporting evidence.
Alternatively, a buyer may prefer to make a new mortgage application, in the hope that the new valuation may offer a different result.
This is Money spoke to Chris Sykes, a mortgage consultant at broker Private Finance, on how best to contend with a down valuation.
Chris Sykes replies: Unfortunately, we see many deals fall through at the mortgage valuation stage. The buyer could try to appeal the decision, or equally they could re-apply with another lender, checking before they do so that the new lender uses a different surveying firm to the one that down-valued the property.
The appeals process can be as simple as the estate agent providing comparable properties to counter the surveyor’s valuation, or as complex as having another surveyor visit the property and value it, which will likely come at a cost.
If the appeal is declined, it is likely that anyone else buying the property would have a similar issue, so the sellers would struggle to sell it again for the original price – unless a cash buyer appears.
Therefore, the best option for a buyer is generally to renegotiate. The seller will often meet them in the middle.
If the seller won’t budge on the asking price, then the buyer will need to make up the difference.
This could be achieved by using additional cash savings to enlarge their deposit, or by requesting help from friends or family.
If their heart is truly set on the property, another solution would be to apply for higher loan-to-value mortgage deal.
For example, it may be that they were going to use a mortgage that covers 80 per cent of the property’s value – by opting for a mortgage deal that covers 90 per cent this might enable them to cover the difference.
If none of these options appeal to the buyer, then their only option may be to walk away from the purchase altogether.