HOME buyers desperate to get onto the property ladder and sellers trying to move up the chain are falling victim to down valuations.
A lack of housing supply and soaring demand has seen house prices rocket to new record highs.
In a clamour to secure properties, buying are now routinely bidding over the asking price for homes – but it’s meant that down valuations are becoming increasingly common.
A down valuation is where you agree to buy a house for a certain price, but your mortgage lender doesn’t think it’s worth that much.
Before a mortgage is agreed, a property valuer assesses that what you’ve agreed to pay is fair. If not – they down value it.
For example, if you had agreed to pay £250,00 for a home, the valuer may decide it is only worth £240,000 and so the mortgage provider will only lend to that amount.
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The difference between the agreed and valuer’s price is called the “down valuation.”
It means buyers can’t secure the mortgages they want, and sellers are being told their homes aren’t worth as much as they hoped, which has a knock-on effect on their next move too.
If you get a down valuation, your lender could decide the risk is too high and withdraw the mortgage offer, so you can’t buy the property.
Alternatively, it may still offer the mortgage, but at a higher loan to value (reflecting the lower valuation), meaning you will have to pay a bigger deposit.
Paula Higgins, chief executive at HomeOwners Alliance, said: “It’s difficult as homes are worth what someone is willing to pay and in a market where supply is low and demand is high, buyers are willing to pay over the odds.
“But this risks a down valuation by the buyer’s mortgage lender, adding delays and possibly scuppering the whole transaction further down the line.”
She has revealed three top tips to avoid down valuation and ensure you’re not left wasting time buying or selling a property.
A hot property market can see buyers paying over the asking price for properties, but it’s important not to get caught up in the furore.
Paula said many wannabe buyers are worried that because of rising inflation and soaring house prices they need to buy NOW or their money won’t go as far in a few months’ time.
But buyers should be wary of offering too high a price – and sellers asking for too high a price as well.
Paula said: “If the vendor needs to sell quickly, without unnecessary delays, then they need to talk to their estate agent about setting a realistic – not optimistic – sale price.”
One way for sellers to gauge an idea of a realistic asking price is to check out what similar properties have recently sold for in their area.
An increasing trend for “sealed bids” is also leading to more down valuations, according to Paula.
This is when potential buyers submit their offer in a “sealed envelope” by a particular date and time, so other buyers don’t know what offers have been put in.
Paula said the process meant a higher risk of buyers paying too much as they try to gauge what other people are offering and try to “win” a bid.
This can lead to inflated prices that don’t reflect what other similar properties have gone for, and it can create problems getting a mortgage if the lender questions the price.
Despite living in an age of technology, Paula advised making “friends” with your estate agent.
Developing a good relationship with the agent can get you the inside scoop of new properties coming to market before their listing goes live online.
Paula said: “Find out who the best estate agents in your local area and become their best friend.
“This is particularly important for first-time buyers because the market is so competitive.”
Many estate agents will email out homes which are coming on to the market days before they go onto property websites such as Rightmove and Zoopla.
So if you’re on their mailing list or on speed dial, you could get a sneak peak before other buyers.
Getting a first viewing could mean you secure a home before it even goes on the market.
With the market so hot at the moment, even if you’re sensible you could fall prey to a down valuation.
But this doesn’t mean the end of the road.
If you’re a buyer, you could appeal a down valuation decision with the lender.
To do this you’ll need to give some examples of recent sale prices of similar properties nearby.
Another workaround would be to increase your deposit, which reduces the proportion loan-to-value of your mortgage and may make it seem less risky to a lender.
You can also speak to the seller and explain the situation, to see if they would be willing to reduce the price – after all, if you can’t get a mortgage on it at that value, it’s likely others won’t be able to either.
If you’re the seller and your home has been downvalued, it can be incredibly disappointing – selling for less than you’d hoped could affect what you can buy next.
But again, there are options. Firstly, you could put the property back on the market – you may be able to find a new buyer with a different mortgage lender, which has a different opinion on the value.
You could lower the price to the amount your buyer is able to get a mortgage for.
Alternatively, you could wait to see if prices rise further and you can sell for more later down the line – of course, the risk here is that prices could just as easily go down.
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It comes as The Bank of England hiked interest rates from 1% to 1.25%, meaning mortgage bills are set to rise by hundreds of pounds for millions of homeowners.
It also warned inflation could soar to 11% in October – higher than previously forecast.
But there are tricks you can muster to help you save and get on the property ladder.
The Sun spoke to one first-time buyer who juggled her day job alongside pulling pints at night to help her afford her £185,000 first home.
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