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How to avoid a Down Mortgage Valuation

Receiving a down valuation on the property you want to buy can be a big concern. But there are steps you can take to avoid your mortgage lender undervaluing your property and putting your purchase at risk.

How to avoid a Down Mortgage Valuation

When buying a home, you may need to apply for a mortgage. An important step in that process is getting a mortgage valuation on the property you wish to buy.

As the seller, you may also need to be aware of your buyer’s mortgage application process. This will help you to keep up with the timeline, as well as being aware of the chances that the sale might not go through. Your potential buyers’ mortgage valuation may also have a significant impact on your property.

What is a Mortgage Valuation?

A mortgage valuation is an assessment by a mortgage lender that aims to investigate what a property is actually worth. The lender will use this to see if it's worth the money the buyer (and therefore they) are being asked to pay for it. The lender can then decide if they should give the buyer a mortgage on it.

A Down Valuation is when the valuation comes back showing the value of the property is less than what the buyer/ lender have been asked to pay for it.

For example: If the asking price for the house is £200,000, but the mortgage valuation comes back stating that the house is worth £180,000, the property has had a down valuation of £20,000.

When a property gets a down valuation, a lender will likely make one of two decisions. They may decide that the risk is too high and so decide not to give the buyer the mortgage, meaning the sale will fall through. Or they may decide to give the mortgage, but at a higher loan to value, meaning they will pay less towards the house and the buyer will have to make up the shortfall by paying a higher deposit. So, in the above example, the lender will give £180,000, and buyers would need to find the extra £20,000 for the deposit.

Many buyers will not be able to afford this new deal, meaning the sale could again fall through.

How does a valuation reach its findings?

Whilst the mortgage lender will arrange their own valuation (but remember, if you are the buyer you will be the one paying for it), understanding how a property’s value is calculated can help you. It’s important that you know what a valuer is looking for and if there might be any cause for concern.

They will look at:

  • The condition of the property – this won’t be a full investigation like a homebuyers or building survey, but it will give a general view of the property’s age, information on damp and possibly some cracks, but little else and it won’t provide you as the buyer any protection post purchase.
  • How much similar local properties have sold for – many neighbourhoods will have houses of similar sizes and layouts, particularly in suburban areas, that may have been sold recently.
  • Supply and demand in the area – are a lot of people looking to buy in this neighbourhood and are there a lot of other properties on the market?
  • The current trends in the overall housing market – the housing market can be very unpredictable and a valuation individual to a property on a street. It will however involved a professional, but personal opinion of your surveyor/lender.

Being aware of these criteria when buying or selling can be invaluable in avoiding receiving a down valuation.

Avoid a down valuation as a buyer

Using what you know about how a valuation is compiled, avoiding a down valuation is something you should really begin thinking about early on in the buying process. When looking at houses you can take some time to research the property market, as well as the area you want to buy in. Try and find out how much local properties have recently sold for, you can do this free of charge by checking sold property price data on the property portals and how many properties are available in the area versus demand.

If you have limited knowledge on the local property market, it can be difficult to wade through and decipher some of the information. This is why you should never be afraid to get an expert opinion. Do speak to your mortgage broker as they can give you lots of useful input and guidance, remember,  it’s never too early in the process to speak to one.

Alternatively, you could speak to an estate agent and see what they’ve been selling in the area and ask their thoughts on the neighbourhood. We publish a House Price Forecast on reallymoving every month, that can also give you insight on what the market might be like in the coming months.

After putting all your research together, the next step in avoiding a down valuation is up to you. Use what you know to put in an offer on your chosen property that you feel is realistic. You should also choose (with your broker’s help) a mortgage provider that is happy to lend on the type of property you are looking to buy, even knowing some of the potential defects. Remember, if you use a whole-of-market mortgage broker, you will have access to more lenders and more deals, which can be invaluable in finding the right lender.

Top tip: the key thing here is to get the best deal you possibly can on a property, which is probably something both you and your mortgage lender want!

Avoid a down valuation as a seller

Once again, the first step when you decide to sell your home, is to do your research. Look at how much properties near you have sold for, how many near you are selling and what the overall industry trends are.

Seeking expert advice can again be invaluable to you. As a seller, it can be helpful to you to invite local estate agents (We would recommend members of NAEA and RICS) to view your property and give their opinions on how you should price it. Different agents will have different opinions depending on their experience, so don’t be afraid to get multiple agents to visit, but do make sure they have recently sold similar properties to your in the past. Then you can see what the average conclusion is.

You next step is deciding what to set as your asking price. Using what you have learnt, you should work with your chosen estate agent to set a realistic and reasonable price on your home. Ideally agree a minimum you would happy to accept and an ideal price you would prefer. And it is always good to be open minded to any offers that come in, even if they are slightly lower than what you would expect. Remember the buyer may have done just as much research as you, and could be acting upon expert guidance.

Try to avoid agents that suggest a price much higher than properties have sold for in the past or than other agents have suggested as your home could stick on the market. Pricing realistically will mean your property isn’t languishing on the market for too long, and you’ll have a lower chance of fall throughs due to down valuations.

Final advice

The truth is, even if you prepare rigorously to avoid a down valuation, they are not 100% unavoidable. Though following this guidance should put you in good stead, there is still a chance that you could receive a down valuation. Some lenders may just see the property differently than others.

So, the final, important thing you should do is prepare for the event of a down valuation. Knowing ahead of time what your options are as a buyer or seller when the property gets down valued, means you can start taking your next steps straight away.

As always, using a mortgage broker during you purchase can also be extremely helpful when it comes to mortgage valuations. A broker will have expert knowledge and be able to give you their guidance and advice specific to your case if you end up with a down valuation.

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