When a buyer has agreed the price of a house with the seller, the mortgage provider employs a surveyor to check what they think the house is worth. The surveyor looks at the sale prices of similar properties in the local area, market conditions in the area, and the current condition of the property.
A down valuation is when a mortgage lender values a property lower than the agreed sale price between the buyer and seller.
Down valuations have been blamed for the increase in housing chains breaking down across the country.
The UK’s largest mortgage advisers, London and County, have said that there’s been a ‘significant’ rise in homes being valued at less than what buyers have agreed to pay.
This can be bad news for a seller because, if they agree to the lower price following independent valuation, they will be missing out on money they expected to receive.
Conversely, down valuations can be positive for buyers, as the house will cost them less than they had even agreed to pay, should they manage to get the seller to agree to the price reduction.
However, it is not always this straight forward; it may actually be that the buyer faces tougher repercussions of a down valuation than the seller.
Sellers are not often willing to agree a reduction in the price, so a down valuation by a lender can mean that the buyer has to pay thousands of pounds extra, up front, if they want to avoid the sale collapsing.
StJohn Wright, Wosskow Brown Commercial Property Solicitor, said: “Trying to convince sellers that their house is not worth as much as the price which the buyers have offered is a ‘big ask’ especially where they will probably have had to drop the asking price in the first place to attract a buyer.”
The risk of a down valuation, which is becoming an increasingly common occurrence, brings some unwanted uncertainty to the house-buying and selling processes.
StJohn added: “Valuation of residential property is very subjective; we find that there can be a difference of 10% or more between the highest and lowest perceived value of a property.”
Emoov, one of the UK’s largest digital estate agents, said that one in five of its sales now result in a down valuation. However, 2 years ago, it was fewer than one in 20.
According to agents from 10 mortgage adviser groups contacted by the Victoria Derbyshire programme, this is the highest rate of down valuations since the financial crash in 2008, and Emoov believe that the increase in down valuations reflects surveyors predicting another financial crash.
Russell Quirk, Chief Executive of Emoov, thinks that the surveyors carrying out the valuations for the mortgage providers are simply covering their backs.
He said: “Surveyors are prophesying a [financial] crash. The system is built to protect them.”
Ebony Roberts and her fiancée Jalisa Andrews, Port Talbot in South Wales, have been the victims of down valuation consequences twice when trying to buy their first house together.
Ms Roberts said: “We got right through to the very end stages of buying a house we had our hearts set on… but then we had a problem when the mortgage valuation came back.”
They had a down valuation of £10,000 and the seller was not willing to drop their price, so they missed out on that house.
A similar thing happened again on another property, so they borrowed £5,000 from family members at short notice, as they were worried of losing that house too.
People remortgaging their house after doing renovation work are also amongst those most affected by down valuations.
Phil Broodbank, from Wirral, bought his house a few years ago for £180,000 and spent £25,000 renovating it.
When he came to remortgage the house, a surveyor valued it at £200,000 without visiting in person, which is known as a ‘drive-by’. This valuation is £20,000 short of the figure it was valued at by a local estate agent.
Mr Broodbank believes that surveyors are to blame, saying: “they didn’t actually take a look at the property. For all they know, the inside could be a complete shell.”
UK Finance, which represents the banking industry, said: “Although the valuation is carried out for the lender, borrowers also benefit from a realistic independent valuation as it could help them avoid paying over the odds for the property they are buying.”