Down valuation - What to do if a valuation devalues your house

Mortgage appraisal valuations are make-or-break scenarios. In most cases, they result in jingling keys and a brand new home. But for some, down valuations can halt or derail a sale at the worst possible time.

If mortgage brokers don’t believe the property is worth the value offered - suddenly, buyers can face a stressful mortgage shortfall, while sellers risk losing a sale or engaging in a prolonged legal battle.

Whether you’re simply looking to remortgage or to buy and sell a house, you may be wondering what happens if a mortgage valuation is lower than the offer you’ve just received or given. This article will explore what a down valuation is, what devalues properties, and why mortgage lenders lower valuations on properties.

We’ll also consider what to do if a surveyor devalues a property from a buyer and seller’s perspective, outlining your options during the valuation process. Read on to find out more.

What is a down valuation?

Down valuations occur when a surveyor determines that a property is worth less than the price that a seller and buyer have agreed. The down valuation difference is usually five to ten thousand pounds (or nearly 4% on an average house price according to 2021 data), but sometimes can be much larger.

The nature of down valuations affects buyers and sellers differently, and down valuations can also occur during the remortgage process. So, it’s important to know what your options are when they happen. We explore the impact of down valuations in different scenarios below.

Down valuations when buying a house

If you're a buyer, down valuations may directly impact your mortgage approval. Banks and credit unions use surveyors to limit their lending risks and ensure mortgage sums link to actual property values, not market bubbles. Therefore, if the property you’re looking to buy has been down valued, your bank or credit union can amend their mortgage offer to you according to the surveyor’s recommendation.

If you’ve just placed an offer on a property, the seller may have a legal right to continue the sale and demand payment. As such, down valuations can be very stressful for buyers.

Down valuations when selling a house

If you’re a seller, down valuations can wipe thousands of pounds from your profit expectations. Unfortunately, if you have a subsequent purchase lined up as part of a property chain, a down valuation can be detrimental to your future move.

Short of a lengthy and expensive legal battle (if you’re entitled to one) to extract payment from your current buyer, a down valuation could ruin any chance at selling your property at the price you were expecting. Though you could find another buyer, doing so takes time, and renegotiating with your existing one means losing money. Moreover, the new valuation may simply be what your property is worth now, regardless of what you paid for it beforehand.

Lower valuation given when remortgaging

If you’re a homeowner, a down valuation when remortgaging may cause your monthly mortgage payments to increase.

Although you may have previously had a mortgage deal for two to five years, changes in the market have meant that your property has gone down in value. As a result, your mortgage may transition to your existing lender’s standard variable rate (SVR). Bank of England’s base rate (currently 0.75% as of 3rd Feb 2022) impacts SVRs, meaning your mortgage payments may go up further on relatively short notice.

How common are down valuations

A 2020 survey by Bankrate found that down valuations affect 46% of UK buyers. However, this picture changes across the UK. England’s South West region had the lowest down valuation rate at 26%, while Wales was the highest with 63%. Moreover, properties between £400,000-£500,000 were the most vulnerable to down valuations.

After consideration by a surveyor, 44% of properties lost between £5,000-£10,000 of their value, while 24% of properties lost between £10,000-£20,000. However, these trends vary across regions and buyer demographics. For example, buyers in England’s North West and East Midlands regions saw their mortgage offers devalued by up to £20,000, almost twice the national average.

Furthermore, young buyers were hit hardest, with 33% of 18-24-year-olds losing £20,000-£30,000 of value. 30% of 25-34-year olds lost slightly less, at 10,000-£20,000, while buyers over 45 only lost between £5,000-£10,000.

How are home values determined?

Surveyors can downvalue property for various reasons, for example, structural problems. So, if you’re looking to avoid a mortgage valuation that’s lower than your offer, knowing what determines property value can help.

Knowing what influences valuations can inform your price range as a seller and can help you bid realistically if you’re a buyer.

What devalues a house?

So why do surveyors or mortgage lenders undervalue properties? A number of factors feed into what determines a property’s final value, including:

• Condition: Does it have structural issues or dampness? Are all the utilities working?
• Size: How many bedrooms or bathrooms are there? Is there a garden or office?
• Location: Is it rural or urban? Are there popular amenities nearby?
• Local market over the last 12 months: How have similar properties gone previously?
• The surveyor's knowledge of the local market: What’s attractive about the area?
• The surveyor’s understanding of the wider market: Is it hot or cold, and which way is it heading?

Check out our expert takes on property value in our ’What is the right price for my home?’ guide.

What to do if a house valuation is lower than an offer

A down valuation from a surveyor doesn’t have to spell disaster during a property transaction. Below, we discuss what to do if a house valuation is less than an offer for buyers and sellers.

What to do as a buyer

Firstly, buyers can commission another property survey by a new surveyor. Property prices have a subjective side, so if you find your mortgage shortfall is only five to ten thousand, a second opinion could turn the tide in your favour.

Secondly, before your offer becomes binding, you may wish to negotiate a new offer with the seller. If you do not negotiate before submitting a lower offer, this is referred to as ‘gazundering’, and is seen as bad etiquette.

Thirdly, you can get a loan for the shortfall or increase your deposit amount. Lenders may not look too favourably on the former as they may see you as relying too much on credit. For this reason, familial support is common in down valuation circumstances. For example, in 2021, parents supported 49% of first-time buyer purchases. Similarly, you may struggle to settle your legal and tax costs during the sale by increasing your deposit, so doing either requires careful planning.

Ultimately, you could find a local estate agent who’s an expert in the area you’re looking to buy in, and who can help you identify potentially overvalued houses or cold seller markets.

What to do as a seller

Sellers typically have more options during down valuation situations.

Before your existing buyer’s offer becomes binding, you may be lucky and receive another offer that allows you to still make the profit you expected. However, this is called ‘gazumping’ and it’s considered bad etiquette in the property world.

Secondly, if the market is slow, you could lower your asking price and sell your property more in line with the lender’s expectations. Doing so allows you to continue with the sale, even if it comes at a cost.

Thirdly, you could invest in your property and address the surveyor’s concerns. For example, if they raise concerns about rising damp or flood risks, you could spend some money tackling the issues and recovering your valuation.

Lastly, you could play the long game and wait for the market to naturally trend up again. However, waiting for the property market to rise is a gamble, as it can take time and may not always go your way. Your property may dip for a considerable amount of time before recovering.

Therefore, try to keep your options open with buyers. Moreover, aim to address potential issues with your valuation ahead of selling by using an expert estate agent who can guide you throughout the selling process.

Summary

Ensure your property transactions don’t fall through at the last minute from down valuations.

Set your prices correctly, and bid with confidence as a buyer using an expert estate agent from your area.

Enter your details in our checker below, and we’ll compare agents in your area for you to pick from. Choose between speed, price and experience all in one dashboard, so you can find the best agent and secure reliable offers.