Down valuation is a term that’s being heard more and more in the property market. Here’s why down valuations are likely to become more of a problem and what you can do about them.

What is a down valuation ?

A down valuation is a situation where a buyer and seller agree a price for a property. The sales process then continues as normal. But subsequently the buyer’s lender has a valuation carried out and decides that the agreed price is in excess of the true market value of the property. In effect the lender’s valuer has down valued the property.

Why might down valuations become more common?

Down valuations are something that have been quite rare in the UK property market for many years. Years of gradually rising property prices have meant that lenders’ valuations have been very much instep with prices agreed between buyers and sellers more often than not.

Today’s market conditions have, however, created a situation where down valuations are more likely.

A report by Bankratesays that 46% of buyers revealed that they had their prospective property down valued by their chosen mortgage lender in 2020. They say that homes valued between £400,000 and £500,000 fell victim to the most down valuations. They add that 50% of buyers aged 18-34 received a down valuation in comparison to 37% of buyers aged 45 and over.

There are a few reasons why this might be:

Prices have risen fast over the last couple of years. This has increased seller expectations as to what their property might be worth. There has been some pretty optimistic pricing in many places.

Buyers have become accustomed to having to offer the asking price (and even above it) to be in with a chance of buying a property.

Now the property market is more uncertain, however. Rising interest rates and the cost of living are prompting buyers to think more cautiously and be more prudent. But, most likely, the expectations of sellers haven’t quite caught up as yet.

Lenders are likely to be more cautious too, leading them to down value more properties in case property prices fall.

Why down valuations can be a problem

Down valuations can cause problems on several levels.

If a buyer cannot get a mortgage for the amount they need to complete the sale they will have to make the difference up from their own pocket. If they cannot they may want to renegotiate the agreed price .... down. If the seller is unwilling or unable to drop the price the sale may fall through.

Down valuations can work their way through the chain and cause other sales to fall through too. If a seller has to drop their price they may have to drop their offer on a property they are buying and so on.

Going to a different lender usually isn’t a solution to a down valuation. (The same thing can happen again. Different lenders may even use the same valuer.)

Down valuations, however, are more of a problem with some types of buyers than others. They tend to be more of a problem if a buyer needs a high LTV mortgage, perhaps if they are a first time buyer, and cannot buy without it. If a buyer has more equity in their current property they may still be able to buy if a down valuation occurs by making up the difference themselves. Also, cash buyers aren’t affected by lender down valuations.

At every level down valuations can be frustrating end expensive for everybody.

How to avoid down valuations

Bearing in mind the current market agents should aim to recommend pricing at a level that will minimise the risk of a down valuation. And aim to manage a seller’s expectations accordingly.

Sellers who are serious about selling should take expert advice from professional agents on appropriate prices to ask and to accept. They should understand that an asking price is not the same thing as the value of a property.

Buyers should be cautious about offering unrealistic amounts just to secure a property .... even a ‘dream property’. That may work initially but once their mortgage application goes in a down valuation may occur and ultimately they may have to start house hunting all over again.

The condition of a property is often relevant too. It’s usually the case that properties in a poor condition and which need repairs are more likely to be down valued.

Lastly, however, it’s worth bearing in mind that some experts in property point out that there is no such thing as a down valuation!

This is because asking prices and agreed selling prices are not market valuations anyway.


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