Property Tips by Chartered Surveyors  from the Haynes House Manual series

What happens when the property you’re buying is down-valued?

Mortgage brokers are worried that surveyors acting for banks and building societies are generally taking a more cautious approach to valuing properties for lending purposes, which can sometimes cause sales to fall through as outlined in this article in The Guardian.

A typical scenario would be where a sale has been agreed – often at a price a little below the estate agent’s asking price. Most buyers will then need to arrange a mortgage to fund their purchase and their chosen mortgage lender will instruct an RICS chartered surveyor valuer to carry out a mortgage valuation to confirm that the property is actually worth the money being paid.

Trouble is, if the bank’s valuation comes in at a lower figure than the agreed sale price, the bank will only lend against this lower figure.

This can cause problems where buyers require a high loan-to-value mortgage. So instead of being able to borrow for example 90% of the agreed purchase price of (say) £500,000 (= £450k)  they suddenly find they can only raise 90% of the surveyor’s ‘downvalued’ figure of  e.g. £ 460,000,  resulting in a £36,000 shortfall.

Even where the loan required is only 75% of the agreed sale price, a downvaluation would push the relative loan-to-value ratio higher so it becomes, say, 80% of the bank’s valuation, which will often mean paying a higher mortgage rate.

Lower mortgage rates generally apply for loans below about 75%, hence the risk of getting stuck with a higher monthly payment.

What can you do?

If the property you’re buying is downvalued, unless the seller agrees to reduce their sale price by the same amount the sale will very likely fall apart.

It’s important to note that RICS surveyors don’t just guess market value – they need to support their opinions with at least 3 recent comparable sales of similar properties in nearby locations. So they may be doing the buyer a favour by alerting them to an overpriced property.  Alternatively it is usually possible to contest a valuation by submitting your own sales evidence to the surveying firm in question via the mortgage lender –  your estate agent should be able to provide the required comparable evidence.

For buyers in this awkward situation a better solution may be to persuade the seller to make a partial reduction in price. Buyers can then consider the option of starting again with a different mortgage lender, who’s surveyor may take a more optimistic view of the market value.

Bear in mind however that chartered surveyors valuing for mortgage purposes normally have access to records showing other recent chartered surveyor valuations for lending purposes, and may be reluctant to veer to far beyond a recent valuation by another surveyor.

In which case arranging an independent valuation by a RICS surveyor may help if it comes in a little higher, as it can be presented as persuasive evidence to the next mortgage valuer.

What’s the official line?

The Royal Institution of Chartered Surveyors (Rics) says on their website that: “It is important to recognise that the ‘client’ in most circumstances is, say, a bank or building society [the lender], not the person taking the mortgage.”

They also point out that “in reality there is no such thing as a ‘down valuation’. What is being described is the difference between worth (to the individual buyer/seller) and market value”.

See Rightsurvey.co.uk for a quick guide to valuation and survey prices

Check out our other posts for more info that will help you pay the right price for the right property.

We would always recommend using RICS certified surveyors in every instance – don’t get caught out, get instant quotes for RICS surveyors here.

 Ian Rock’s Rightsurvey property tips are taken from the Haynes House Manual series.