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What is a mortgage down valuation?
A mortgage down valuation is where a surveyor visits the security property on behalf of a lender and values it at less than what has been stated on the application.
For instance, if a house was being purchased at £400,000 with a 90% mortgage, this would result in a borrowing of £360,000. The applicant will need to put down a deposit of £40,000. If however the property was down valued at £350000, this could cause a big issue.
You may have the finance and still intend to buy the property for £400,000, but the lender was only willing to lend 90% of the Surveyor’s valuation, this would result in a mortgage of £315,000.
If taking the same 90% mortgage product, the applicant would need to increase their deposit by £45,000 resulting in a deposit of £85,000, which may mean that the purchase cannot proceed on this basis. When this happens, you should talk to your mortgage advisor to determine the options.
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How common is mortgage down valuations?
Mortgage down valuations happen daily. It is not uncommon for a valuer to disagree with a value that has been placed on a property by an estate agent or a property owner.
It does not always mean that the surveyor is correct when giving a value as sometimes people will be willing to pay more than the figure that they place on the property.
However, surveyors need to remain conservative when valuing a property whereas an estate agent may be a bit more optimistic.
Surveyors will use data from comparables of other similar properties that have sold recently to gauge what they believe the correct value for a property should be.
Mortgage surveyors are members of the Royal Institution of Chartered Surveyors (RICS).
Being qualified professionals, the lenders take note of their valuations and comments over anybody else’s.
There are two types of mortgage valuation, a standard valuation which is often carried out by the mortgage lender or a home buyers report.
Can you appeal a mortgage down valuation?
On some occasions, it may be possible to appeal a valuation figure if you believe that it is not correct, but this is not always an easy thing to do and you usually need plenty of data to back up your figure. Not every lender will allow an appeal. Your mortgage adviser would be able to confirm this.
If your lender is willing to accept appeals following a mortgage down valuation, a common request is 3 property comparable valuations. These would have to be very similar properties within a small radius, an example would be half a mile.
Lenders often need to see that the property has been sold and completed at a certain value with data showing on the land registry.
If a property is superior or inferior to the security property, they would ask for notes as to why. This information can then go back to the surveyor to reconsider their figure or confirm whether they stand by their first opinion.
As stated above, this is not the case for all lenders, so ask your mortgage adviser what your options are in regards to down valuing.
How do you renegotiate after a mortgage down valuation?
If you have had a mortgage down valuation that now impacts your mortgage when buying the property, you may wish to try to negotiate the purchase price.
Depending on the level of interest on the property, some people have success doing this as the new purchase price is backed up by data from a chartered surveyor suggesting that the original price was too high. If interest in the property is very high, and there are many other interested parties, the vendor may not wish to renegotiate.
You would need to talk to your estate agent or vendor directly if you are buying a property privately to find out their stance on reducing the property in line with the professional valuation from the surveyor.
What are the options following a mortgage down valuation?
Mortgage down valuations can have a large impact on a purchase or remortgage so you will want to consider your options.
Switch to another product
Sometimes, when a property has been downvalued, you can simply switch to another product with a higher loan to value threshold so the original lending amount becomes acceptable to the lender.
However, if you do this, you may need to pay more interest on the product due to it being at a higher loan to value than when you first applied.
Increase your loan deposit
Another option would be to increase your deposit to the difference between what a lender is willing to give you, and what you need to pay for the property. It may however be the case that you do not have the funds to adjust your deposit by the amount needed to now make the property transaction go through.
Renegotiate the home purchase price
Renegotiating is also an option as some vendors may be willing to reduce the purchase price to reflect that on the valuation report. If this is the case, this would be beneficial to you as you would get your original product, whilst getting a more attractive rate for the property.
Switch Lender
In addition to this, you could try switching lenders to see if you get the same outcome.
One surveyor’s opinion may differ greatly from another’s. As a result, applying for a new mortgage through a different lender can sometimes be successful.
If the mortgage lender appoints a different surveyor who believes that the property is worth more than the first surveyor, you may get the lending that you wanted in the first place. To look at your options properly, you should talk to a qualified and experienced mortgage adviser that can go through them with you. Read more: Can Mortgage Brokers Get You A Bigger Mortgage?
If you would like to be matched with a mortgage adviser to talk about your options, I NEED ADVICE can arrange this if you complete the contact form.
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What happens if the property valuation is lower than the offer?
If the property valuation is lower than the offer that you have put on the property, you can still buy it at the amount that you offered.
As explained in the answer above, this would however mean ever-increasing your deposit, switching lenders or looking for a higher loan to value mortgage product.
With that said, it is down to you to offer what you are willing to pay for a property. If you are happy paying over what a surveyor believes the property is worth, that is your decision.
If this is the case, you will need to pick one of the options and it would be a good idea to talk to a qualified professional who can help you with your decision.
What is a rent down valuation on a buy to let property?
You can also get mortgage down valuations on buy to let properties. When this happens, it may not be just the purchase price that gets downvalued.
When a surveyor visits a buy to let property to give a value for a buy to let mortgage, they are also looking at what they believe a property would achieve on the rental market.
Even if a property gets a certain amount right now, e.g. £1,000 per month, this property can still be down valued on the rental amount to another figure, for instance, £800 per month.
Just because a property achieved a certain amount of rent per month, this is not to say that a surveyor may not think that it lets for a premium and would not necessarily get this amount again.
If this is the case, they would usually report a lower number to the lender.
When this happens, it may cause your buy to let the mortgage lender to offer you a lower loan amount due to the rental stress test coverage of the mortgage balance.
If this happens, it may mean that you need to make up for the shortfall due to the reduced balance, find another lender hoping for a different valuation figure, look for a lender that offers a more generous rental stress test or one that can consider personal income to go towards the assessment (also called top-slicing).
When this happens, things can be complex. You should talk to an experienced buy to let mortgage adviser who can give you the individual advice that you need.
Conclusion
As it should be clear by now, a mortgage down valuation can have a significant impact on your mortgage application, sometimes meaning that you cannot proceed with the property.
This is not always the case though, and there can be other options.
Taking professional advice is important in this situation, so you know the best route forward.
If you would like I NEED ADVICE to match you with an experienced and qualified mortgage adviser that can go over your individual options, please complete the contact form.
They are experienced, which can boost your chances of being approved.
