Mortgage blog: What to do if the property you are buying is downvalued
Homebuyers are increasingly finding themselves having to find more money to buy as house prices rise faster than market valuations of property. ‘Downvaluations' - where a surveyor values a property at less than the purchase price - are on the rise thanks to sale prices increasing more quickly than the evidence that surveyors can use to support a valuation.
With surveyors also more cautions after the problems encountered in the run up to the global financial crisis, many homebuyers are being faced with a cash shortfall. We look at how a downvaluation impacts your property purchase and provide three ways of dealing with this problem.
What is the impact of a downvaluation?
The main impact of a downvaluation is that you will either have to put more money into the purchase or you could end up paying a higher mortgage rate.
For example, if you agree a £150,000 purchase price for a property and you want to put down a 20% deposit (£30,000) you'll have an 80% mortgage of £120,000 agreed.
If the property is downvalued to £140,000, an 80% mortgage will only give you £112,000. This means you may have to put in an additional £8,000 of your own money. Or, you may still want to borrow £120,000 but this makes your mortgage 86% loan-to-value, meaning you will probably pay a higher interest rate.
Renegotiate the price
If the property you want to buy is downvalued you can approach the seller and negotiate on the price. You can use the valuation report as evidence that the sale price is too high and you may be able to get the vendor to reduce their price, particularly if the property has been on the market for some time.
Challenge the valuation
If you have evidence that supports the higher valuation you can try to challenge the surveyor's assessment. You are likely to have to provide evidence of similar-sized properties that have sold in your local area: the Land Registry or even local estate agents may be able to provide this.
Beware that some lenders won't deal with all appeals. The Daily Telegraph reports that Barclays will investigate cases only when the surveyor has undervalued a property by more than 25%, while NatWest will not accept appeals at all.
When a surveyor values a property there will always be some degree of subjectivity. Two surveyors valuing the same property may not agree on an exact value.
You can consider applying for a mortgage with another lender who uses a different surveyor. You will have to pay for another valuation but the new lender's surveyor may come up with a more suitable valuation.
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