Understanding The Rise In Property Down-Valuations

Brooke Williams -

What Buyers and Sellers Need to Know

The UK property market has always been subject to fluctuations, but recent trends suggest a new challenge is emerging for both buyers and sellers: property down-valuations. Surveyors and mortgage lenders have increasingly been marking properties below their expected market value, creating a gap that can affect home purchases, remortgages, and investment plans. We explore the phenomenon, its causes, its impact on the market, and what stakeholders can do to navigate it.

What Are Property Down-Valuations?

A down-valuation occurs when a surveyor or lender assesses a property and concludes that its value is lower than the agreed sale price or the expected market price. While valuations are standard practice in property transactions, recent reports indicate that down-valuations are becoming more frequent, particularly in certain regions and property types.

According to Mortgage Introducer, London buyers are increasingly experiencing markdowns from surveyors, especially for flats where comparable properties are limited. Similarly, Lock & Key Mortgages highlights that down-valuations are not limited to new purchases but are also affecting remortgages. Different surveyors can produce significantly different valuations for the same property, creating uncertainty for buyers and lenders alike.

Why Are Down-Valuations Rising?

Several factors contribute to the recent increase in property down-valuations:

1. Economic Uncertainty

Surveyors are naturally risk-averse. When the market is unpredictable, they tend to provide conservative valuations to protect themselves and the lenders they work for. Mortgage Introducer notes that surveyors are marking properties down in part because of economic instability, stagnant house prices, and the difficulty of finding reliable comparables.

2. Regional Disparities

Certain areas, particularly London and the South East, are experiencing more pronounced down-valuations. Flats and apartments are especially affected due to a thinner pool of comparable sales. As Mortgage Introducer reports, buyers in these regions face greater challenges when securing mortgage offers at the desired property price.

3. Investment and Buy-to-Let Properties

Buy-to-let and other investment properties are seeing down-valuations more frequently. Lenders often focus on the “bricks and mortar” value rather than projected rental yields, leading to lower valuations that can surprise investors. Mortgage Introducer highlights that this trend is particularly common in the buy-to-let market, complicating investment decisions.

4. Surveyor Caution and Professional Risk

Surveyors are increasingly cautious because of the potential professional risks involved. Overvaluing a property could lead to financial losses for lenders, which in turn could result in legal or reputational consequences for the surveyor. London World reports cases where surveyors' valuations differed dramatically, sometimes by over a million pounds for high-value properties.

5. Market Stagnation

A stagnant housing market creates uncertainty, prompting surveyors to adopt conservative valuations. MoneyWeek notes that in high-value areas, down-valuations have wiped millions off property values, affecting buyer confidence and slowing market activity.

The Impact of Down-Valuations

Down-valuations have far-reaching consequences for all parties involved in property transactions.

Buyers

For buyers, a down-valuation can mean:

  • Increased deposits: If a lender values a property below the agreed price, buyers may need to increase their deposit to cover the shortfall.
  • Renegotiation challenges: Buyers may have to renegotiate the purchase price with sellers, which can lead to delays or failed transactions.
  • Mortgage complications: In some cases, lenders may reduce the mortgage offer, making it harder to complete the purchase.

Sellers

Sellers face their own set of challenges:

  • Reduced sale price: Down-valuations can force sellers to lower their asking price, sometimes significantly.
  • Longer time on market: Properties that are repeatedly down-valued may take longer to sell.
  • Market perception: Multiple down-valuations can create a perception of overpricing, discouraging potential buyers.

Investors

For investors, particularly in the buy-to-let sector, down-valuations can impact projected returns. Lenders focusing on physical property value rather than rental yield may limit the amount of finance available, potentially affecting investment viability.

Case Studies and Real-World Examples

Several reports illustrate the extent and impact of down-valuations:

  • London flats: As highlighted by Mortgage Introducer, flats in London are particularly susceptible, with buyers often encountering lower valuations than anticipated.
  • High-value discrepancies: London World describes a new-build property where one surveyor valued it at £1.7 million, while another surveyor for a different lender assessed it at £2.8 million, creating a £1.1 million gap.
  • Market-wide impact: reports that in certain high-value areas, down-valuations have collectively wiped millions off property values, affecting overall market confidence.

Despite the challenges, there are strategies that buyers, sellers, and investors can use to mitigate the impact of down-valuations.

1. Shop Around for Valuations

Different surveyors and lenders can produce varying valuations. It's wise to explore multiple options to understand the potential range. If a down-valuation occurs, buyers can request a second valuation from a different surveyor or lender.

2. Understand the Lender’s Approach

Lenders have varying criteria for valuations. Understanding how a specific lender approaches property assessment can help set realistic expectations. Some lenders are more conservative, particularly in areas with volatile or thin comparables.

3. Prepare to Negotiate

Buyers and sellers should be prepared to renegotiate based on the valuation. This might involve adjusting the sale price, increasing deposits, or considering alternative financing solutions.

4. Keep Detailed Comparables

Having a well-documented record of comparable sales in the area can support arguments for a higher valuation. Brokers and agents can assist in compiling this data to strengthen the case.

5. Consider Professional Advice

Mortgage brokers and property consultants can provide guidance on navigating down-valuations, including appealing valuations or exploring lenders willing to provide higher assessments.

Staying informed about broader market trends can help anticipate down-valuations.

The Future of Property Valuations

Experts suggest that down-valuations may continue to play a significant role in the UK property market, particularly in high-value and investment sectors. As the market stabilizes, surveyor caution may ease, but economic uncertainty and regional disparities will likely continue to influence valuations.

Conclusion

Property down-valuations are becoming an increasingly common feature of the UK housing market. Buyers, sellers, and investors must navigate this challenge carefully, understanding the causes, preparing for potential valuation gaps, and seeking professional guidance where needed.

By staying informed, exploring multiple valuation options, and using detailed market data, stakeholders can mitigate the impact of down-valuations and make informed property decisions. While the trend presents challenges, awareness and preparation can help navigate the complexities of a changing market.