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Rise in lenders valuing homes below sale price

The UK’s largest mortgage advisers London and Country has told the BBC’s Victoria Derbyshire programme that there has been a “significant” rise in homes being valued at less than what buyers have agreed to pay – known as a “down valuation”.  

When a buyer agrees the price of a property with a seller, the mortgage provider uses a surveyor to check what they believe the house is worth. This valuation is to ensure that there is sufficient equity to cover the loan to satisfy the lender.  

If the vendor is unwilling to reduce the price, down valuations by lenders can mean buyers having to increase the size of their deposit to avoid the sale collapsing.

UK Finance, which represents the banking industry, defended the valuations, saying that: “Lenders have a responsibility to ensure that the value of property taken as security on mortgage loans is current and realistic.”

They added: “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.”

Estate agent Jonathan Hudson said that valuers were being “over cautious” to “cover their back” either because they didn’t know the area or had insurance covenants to meet.  

Russell Quirk, Chief Executive of online estate agency Emoov agreed. He said down valuations were the result of surveyors – who carry out the property valuations for the mortgage providers – “simply covering their backs” and that they were “prophesying a crash”.

Emoov told the BBC that 1 in 5 of sales were now affected by down valuations compared to just 1 in 20 two years ago, showing that the issue has become more prevalent post-Brexit.

The programme identified that those with the smallest deposits and who have remortgaged their house after doing renovation work were most likely to be affected by down valuations.

Having spent £25,000 renovating his house, Phil Broodbank, from Wirral, said, when the time came to remortgage, a surveyor valued his house without visiting it in person – known as a “drive by”. He was forced to go to another lender wasting hundreds of pounds in aborted fees.

Explaining the valuation process, the Royal Institution of Chartered Surveyors (RICS) said: “The market value is based on comparable market evidence, usually a minimum of three sales transactions of similar properties in the local area, and also the professional’s knowledge of the local market including supply and demand dynamics.

“For this reason, it is quite possible that the valuation for the lender – the market value – does not match an asking price for a property that has been set by the seller or agent.”

To watch the programme in full, visit www.bbc.co.uk/programmes/p06fh4ww

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