Down valuation boom: will it stop you getting a mortgage?

The frequency of 'down valuations' - when a property is valued for less than the agreed sale price - has risen over the past two years, causing some buyers to lose out on their dream home. So what does it mean for your mortgage deal and can it be avoided?

As many as one in five homes in the UK are now down-valued by mortgage lenders according to new data from online estate agent Emoov - up from a relatively low one in 20 two years ago.

Here, we take a look at what down valuations mean for your mortgage offer, why the frequency of down valuations is booming and how to avoid a down valuation ruining your property transaction.

What is a down valuation?

Once a buyeragreesa sale price for a property with the seller, their mortgage provider will use a surveyor to carry out a property valuation to make sure the property is worth what they have offered to pay for it.

The surveyor will compare the agreed property sale price to similar properties in the local area and may even visit the property to do a valuation.

If a surveyor thinks that the property is worth less than the agreed sale price, a mortgage lender will give a down valuation and reduce the amount of money they are willing to loan to a buyer to complete the purchase.

This means that if the buyer can't renegotiate the sale price with the seller, they will have to find extra money to make up for the deficit - or risk losing it.

So, say that a property is advertised for £250,000 and you offer £240,000. If your lender decides it's only worth £230,000 you will have to ask the seller to reduce the price or find an extra £10,000 to carry on with the purchase.

A recent BBC report found that some buyers that have received down valuations lost their dream home because the sellers refused to drop the sale price and they weren't able to find the money to make up the shortfall.

• Find out more: how much deposit do I need for a mortgage?

Why are down valuations rising?

Down valuations are not a new phenomenon and usually happen when house prices are out of sync with current market trends.

A down valuation is more common in markets where house prices are falling or transaction volumes are low, but a seller hasn't adjusted their sale price to match.

In the current market, property sales levels are cooling and home values in places such as London appear to be falling slightly.

February 2018, for example, was the first month in six years where the average house price was lower than the year before, according to Office for National Statistics (ONS) data.

David Blake, from Which? Mortgage Advisers, commented: 'Property price activity has become very geographically split, so while in some areas property prices are dropping, in others they are increasing.

'It's important people research how much properties have sold in their area within the past three to six months.

'Similarly, for sellers - it's important to be realistic about how much your property's worth. We would all love our homes to be worth more, especially if you have put a lot of work into it.

'The reality is that sometimes, even if home improvements have taken place, your property might be worth less than when you bought it or remortgaged.'

• Find out more: how much can I borrow: mortgage calculator

What to do if your property is down valued

If you're a buyer and the property you want is down valued, it's worth trying to renegotiate the sale price with the sellers or trying to find some extra cash to make up the difference.

Another option is to try an alternative lender that uses a different surveying company, which may give a valuation closer to your original agreed sale price.

Some lenders may allow you to appeal a valuation, but this isn't common and will require you to have robust evidence.

Which? Mortgage Advisers' David Blake explains: 'Certain lenders allow you to appeal a valuation but you will usually need to prove evidence of three properties that have sold in your area within the past three to six months.'

• Find out more: improving your mortgage chances

How to avoid a down valuation

Down valuations can put a tremendous amount of strain on the already stressful process of buying a home, so it's best to avoid them if you can. Here are some tips.

1) Research a property's value

It's important to research the value of the property you're hoping to buy or sell.

Look at how much properties in the area have actually sold for over the past three to six months, so that you get an idea for what a realistic sale price should be.

2) Get an expert opinion

If you're selling, you should invite three local estate agents, who have recently sold properties similar to yours, to value your home.

They can take a look at the property, offer insight into local market activity and use recent experiences they've had with similar properties to give you a valuation.

It's likely you'll end up with three different figures from the three different agents, but don't just go for the highest sale price. A good rule of thumb is to go with the middle valuation or calculate an average.

3) Check with your lender

If you're hoping to sell your home, it's possible to check what property value your existing lender has on file.

This can help guide your decision on how much to put your property on the market for.

4) Make a realistic offer

If you're a buyer you should use your research to make a realistic offer on a property.

So if the property is on sale for £500,000, but you've seen similar properties sell for £425,000, don't be afraid to offer under the asking price - it could save you a lot of trouble later on.

• Find out more: how much is your house worth?

5) Find the right mortgage provider

If you're going for an unusual or risky property, such as a flat above a shop, it's worth seeking out a provider that specialises in this.