Table of Contents
My husband and I are buying our first home. We found a house we really liked, made an offer, and managed to agree on a lower price than the asking price. The real estate agent even told us that he thought we were getting a good deal.
But the mortgage valuation has just come back and values the property at £40,000 (10 per cent) less than we bought it for, meaning the bank won’t lend us as much as we initially thought.
Both the real estate agent and the mortgage broker told us that there are a lot of downward valuations happening right now.
Downside Appraisal: A mortgage appraisal may seem like another element of the home buying process that is completely out of the buyer’s control.
We first tried to negotiate with the seller based on the feedback, but they are not playing ball. The real estate agent suggested we try our luck with another mortgage lender, who might use a different appraiser.
What should we do? We really like the house and can make up the shortfall in mortgage loans with our savings, but we are worried about paying too much in a market that is not exactly booming.
What are the chances that a different appraiser will come to a different conclusion?
Ed Magnus from This is Money responds: Mortgage brokers have recently reported an increase in downward valuations, which can cause serious headaches whether you are a buyer, seller or even remortgaging.
Being told that the property is worth less than what you agreed to pay may seem like a good thing, as it may persuade the seller to reduce the price to allow the transaction to move forward.
However, if they are not willing to do this, it means that the borrower could be left with a shortfall between what the mortgage lender will allow him to borrow and what the seller wants him to pay.
How are mortgage valuations done?
The sales price in your case may have been set by an overly optimistic seller or by a real estate agent seeking to win the instruction by promising a higher sales price than the competition.
Meanwhile, a mortgage appraiser bases his valuation on similar homes in the area that have already sold.
Each lender will require a valuation to check that the property meets their lending criteria and that the amount paid represents the market value.
In this case, the lower valuation will mean a lower mortgage amount, which is why you are left with a deficit.
It’s a risk? Our reader has received a downward valuation, the seller is not lowering the price and is concerned about overpaying in a market where house prices have fallen since 2022.
For example, if you were buying the property for £400,000 with a 90 per cent mortgage of £360,000 and a 10 per cent deposit of £40,000. If the property was then valued at £360,000, it means that the lender will now only be willing to lend you 90 per cent of £360,000, which is equivalent to £324,000.
In addition to your £40,000 deposit, you need to determine whether you want to put the remaining £36,000 towards making up the difference.
How to deal with a downward valuation
The best solution will be to renegotiate a new price with the seller and the real estate agency based on the valuation of the mortgage.
Remember, the seller also has to worry about this happening again if they try to sell to someone else.
But if the seller isn’t willing to renegotiate, you’ll need to make a decision about what to do next.
It is possible to appeal a downward valuation, but to do so you will need at least three examples of properties comparable to the one you are purchasing, all of which have recently sold, to demonstrate that the original agreed price was correct.
Even if you get this information, the chances of an appeal being successful are not high, even with strong evidence to support it.
Alternatively, a buyer may prefer to make a new mortgage application with a different lender, in the hope that the new valuation will offer a different result.
For expert advice, we spoke to jeremy leafNorth London estate agent and former residential chairman of Rics, and ravesh pateldirector and senior mortgage consultant at broker Reside Mortgages.
Read: Is a two-year fixed mortgage still a good bet?
Why might this have happened?
Ravesh Patel replies: In fact, many valuations are currently disappointing and there are many properties that are undervalued.
It is important to understand that properties are valued based on current market conditions and not their value in the future, so the overall state of the economy influences property values.
The way appraisers value property is based on recently sold properties of similar type, structure and neighborhood.
So if there are very few sales of the type of property you are trying to buy in that particular location, this could have an impact on the appraiser’s evaluation.
Expert: Jeremy Leaf, North London estate agent and former Residential Chairman of Rics
Should they try to renegotiate with the seller?
Jeremy Leaf responds: Much of the answer to this question is determined by the market, because it also depends on whether the seller is willing to renegotiate the price.
If the seller believes that it will be difficult to find another buyer, he is more likely to negotiate on the basis that other buyers are likely to face similar devaluations.
Likewise, from your perspective, if you think there are alternative properties you would like to purchase, perhaps on better terms, this might make you think twice about purchasing this property and choose to walk away rather than negotiate.
Communication and transparency are paramount, and there will probably be a lot of negotiating involved as well.
Should they use their savings to pay the deficit?
Ravesh Patel replies: Whether you should use your savings to make up the shortfall to purchase the property depends on your attitude to risk.
Like any investment, the value of a property can go up or down, so it’s important to take a long-term view.
Of course, no one can foresee where the market will be in the future. However, if you plan to buy the property long-term, the current valuation is unlikely to reflect what it might be worth in the future.
Surveyors value a property on behalf of the mortgage lender as part of the approval process. If your figure is lower than the agreed price, the lender may reduce the loan amount.
Should they check the rating?
Jeremy Leaf responds: Assuming you want to make this purchase and think it’s a fair price, try asking your lender what the basis of the valuation is.
Were there other properties in the area that may have influenced the appraiser’s decision, or did they simply discount 10 percent of all appraisals that particular week?
If you can see comparable properties, you may agree that the appraiser is right and that you shouldn’t pay as much as you agreed to.
> Read: How much have house prices near YOU increased since Covid?
Likewise, the seller may have overpriced and, when you see comparable evidence, you may be willing to be reasonable.
If the seller is negotiating and needs to raise a certain amount for their future purchase, perhaps they can renegotiate the price of the property they are purchasing?
Expert: Ravesh Patel, Director and Senior Mortgage Consultant at Reside Mortgages
Can they appeal the assessment?
Ravesh Patel replies: Yes, in theory it is possible to appeal an assessment. However, in practical terms it is unlikely to be accepted unless there is really compelling comparative evidence.
Never mind that just because a property is marked sold on Rightmove or Zoopla for a higher price doesn’t necessarily mean it has sold for good as it may fall through later.
It also does not necessarily mean that it sold for the same advertised price. The offer may have been accepted for a lower price than requested.
I have seen very few cases successfully appealed.
For remortgage, the same principle applies, but in most cases, unless some work has been carried out to significantly improve the property and increase its square footage, the appeal is unlikely to be successful.
Could you try another lender?
Ravesh Patel replies: It is possible to be successful with other lenders as long as the next lender does not use the same appraiser or panel of appraisers.
However, this is not guaranteed. A new application to a different lender is subject to a new credit check, which will lower your credit score each time you do it.
It would be worth speaking to a mortgage broker to understand the likelihood of success taking into account the interest rate and criteria a different lender might have.
Jeremy Leaf adds: The danger of opting for another lender and valuation is that the new appraiser may value the property even lower, while the new mortgage may be on less favorable terms.
If you decide to pursue this option despite the risks, you should be careful not to fall between two camps and obtain a commitment from the seller that they will not sell to anyone else within a reasonable time to give you time to get another one. mortgage.
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.