Moving house is a tricky process from start to finish. Once you’ve found your dream property you can only cross your fingers that it’s going to go smoothly.
So what do you do when the mortgage valuation is lower than offer? Will your mortgage lender still be willing to lend? Is there a way of challenging the valuation?
We’re going to answer all these questions for you, including what exactly a down valuation is, how common they are and what actually happens at house valuations.
Ready to skip to an answer? Use the menu below:
- What happens at a house valuation?
- Mortgage valuation higher than offer
- Mortgage valuation lower than offer
- What is a down valuation?
- Can you challenge a surveyor’s valuation?
What happens at a house valuation?
A house will be valued by a surveyor taking into account similar things to what an estate agent would, but you will often find an estate agent will give a higher value for the property.
This is mainly because an estate agent knows when you put a property on the open market unless you specify you want ‘offers in excess of‘, you’re likely to end up with offers below the asking price. Also, an estate agent makes their commission based on the sold price, so they will want to inflate the asking price to increase their chances of getting a higher commission.
Surveyors are also bound by strict inspection criteria and don’t want to be sued by a mortgage company, should they overvalue the house, so they tend to give a more cautious valuation.
The Royal Institute of Chartered Surveyors (RICS) applies International Valuation Standards when surveying a property, which will take into account:
- A property’s condition
- Supply and demand of properties in the local area
- Sold house prices locally for similar properties
- The current state of the property market (i.e. whether it’s a buyer’s or seller’s market)
How much does a house valuation cost?
A valuation being conducted by a RICS surveyor can cost between £150 to £800, depending on the area, size and value of the property.
However, according to the Money Advice Service, a mortgage valuation can cost up to £1,500, depending on the price of the property.
Mortgage valuation higher than offer
There can be times when the mortgage valuation higher than offer accepted, but these are rare cases. It tends to be in investment type deals, where the property is being sold for below market value.
A good thing about getting your mortgage valuation higher than offer is that it’s private to you and you don’t need to inform the seller of this. Otherwise, if the seller had to be informed of the higher valuation, it’s likely they would bump the price to be in line with the valuation.
Another good thing about getting your mortgage valuation higher than offer is that there will be no issues with your mortgage lender allowing you to get a mortgage on the property, making it a smoother process of acquiring a mortgage.
Mortgage valuation lower than offer
When you get a mortgage valuation lower than offer this is called a down valuation and has a lot of complications. Mainly because a mortgage lender won’t want to approve a mortgage for more than the property is actually worth, as it requires them to take on a lot of risk and not know whether or not they will be able to make the money back.
Wanting to know more about down valuations and what to do if mortgage valuation lower than offer accepted? Well, that takes us perfectly onto…
What is a down valuation?
A down valuation is when you receive a mortgage valuation lower than offer accepted on the property. To be precise, the down valuation is the difference between the two figures.
For example, if an offer has been accepted at £300,000 and then the surveyor’s valuation comes back at £250,000, then there’s a down valuation of £50,000.
How common are they?
Over recent years with the COVID pandemic causing uncertainty, down valuations have become more common. This is because surveyors must be able to evidence their valuation on paper to avoid being sued for overvaluing a property.
As a result of this, due to the uncertainty of what is to come for the housing market, surveyors have been more likely to undervalue properties, mainly to avoid being sued further down the line.
Of course, in current times, it’s hard to provide an accurate valuation as no one can be sure what a property will be worth further down the line.
According to research from mortgage comparison site Bankrate UK, over recent years 46% of properties were down valued by lenders. This shows that there’s a high chance of your property being down valued in the current climate.
Why is it a problem?
A down valuation is an issue for both buyers and sellers and can lead to a tricky situation, where the buyer doesn’t want to pay what they’ve offered but the seller isn’t willing to renegotiate.
If you’re a buyer and the mortgage valuation has come back lower than your offer, then this will be a problem for you, as you will struggle to be able to secure the loan you need. This is because a mortgage lender will be reluctant to take on the risk of paying above the market value for the property, as there’s no guarantee they will be able to make this money back.
However, if you’re a cash buyer then of course you won’t have this issue, as you don’t require a mortgage to purchase a property and therefore you can proceed to buy the property, providing you’re happy to do so.
If you’re a seller and the mortgage valuation is lower than the offer you have accepted, then this will be a problem for you, if your buyer requires a mortgage. This is because when a property’s estimated market value is less than the agreed price, the loan-to-value (LTV) ratio increases.
The higher the LTV ratio, the more reluctant lenders will be to approve a mortgage as it’s seen as a greater risk. As a result of this, your buyer won’t get a mortgage approved and therefore will be unable to buy your property.
What should I do after down valuation?
Although down valuations aren’t something you want to receive, the good news is, for both buyers and sellers, you do have other options…
As a seller:
- Find a cash buyer. A cash buyer won’t need a mortgage to purchase your property and therefore won’t need a valuation to be done on the property after you’ve accepted their offer
- Find a new buyer with a different lender. This may mean you find a buyer and lender that are willing to value the home at what you think it’s worth
- Address the reasons for down valuation and spend some money improving these areas. This will mean you can get another valuation, which should be more in line with the accepted offer
- Be willing to negotiate on price. Whether this is on the asking price or on the offer you’ve accepted to bring it in line with the valuation, it’s key you’re willing to negotiate to be able to get a deal over the line
As a buyer:
- Find another surveyor for another valuation. A different surveyor will be acting for a different lender, who may either value the property in line with your accepted offer or the lender may be more prepared to take a risk, should you receive a down valuation again
- Attempt to renegotiate on price to get the agreed price in line with the valuation. This way there’s no risk for any involved party, as the down valuation will no longer be valid
- Get a loan for the down valuation amount. This way you’re able to cover the shortfall and your mortgage lender are able to lend a smaller amount and don’t need to take on the risk, so they will be more likely to lend
- Increase your deposit. This will allow you to get a smaller mortgage and you’re covering the cost of the down valuation, instead of your lender needing to take on the risk. We know this isn’t something everyone will be able to do and it may involve dipping into your savings
Can you challenge a surveyor’s valuation?
Some mortgage lenders do give you the opportunity to appeal the valuation. However, you will need to have evidence to explain why you disagree with the valuation, rather than it being a case of it being lower than you wanted it to be.
An example of evidence you could find to appeal to a decision is records of sold prices for similar properties in the local area which have sold within the last 6 months.
Can you renegotiate a house price after valuation?
The simple answer to this is yes! If your mortgage valuation comes in lower than the offer you’ve had accepted on a property, it’s only natural for you to want to renegotiate to get the sold price in line with the valuation.
However, although you can attempt to renegotiate, there’s no guarantee that the seller will be open to renegotiation, as sellers tend to have an idea in mind as to what price they want to achieve.
So that’s it – everything you need to know about when a mortgage valuation lower than offer accepted, including what happens at house valuations, how common down valuations are AND what to do as a buyer or seller in this position.
Do you have any insight to give? Or a question to ask? Maybe you want to have a go at writing an article yourself? Whatever it is, don’t hesitate to get in touch!
Millie is a perfectionist with a passion for property and writing articles. You’ll find her researching the latest housing trends and the newest up and coming areas worth investing in.