BROKERS are reporting a rise in down valuations as surveyors become increasingly “defensive” in a stagnant property market.
One has seen a spate of down valuations during the past fortnight, ranging from 10% up to almost a third of a property’s value.
A down valuation happens when a surveyor or valuer acting on behalf of a lender deems a property’s value to be less than the agreed sale price, or open market value.
Where down valuations occur, property transactions come under pressure and often fall through, experts say.
Jamie Elvin, Director at London-based Strive Mortgages, said: “We’ve had some incredibly big down valuations in the past couple of weeks. These are not just the usual marginal trims, but reductions of £200k, £300k and even £400k in some cases. In percentage terms, some have been 10%, 20% and even 30% of the property value.
“I’ve seen periods of down valuations before, but not really to this scale, and in a lot of these cases I don’t think the wider market justifies the size of the reduction.
“It feels like some surveyors are taking an extremely defensive position, particularly where there’s any perceived uncertainty, and the result is valuations that are materially below what the evidence on the ground would suggest.
“The knock-on effect is obvious: deals fall apart, chains come under pressure, buyers have to find larger deposits or renegotiate, and brokers end up spending huge amounts of time trying to challenge valuations or salvage cases that were otherwise perfectly workable.”
Jack Tutton, Director at Fareham-based SJ Mortgages, also said down valuations “appear to be becoming more common”.
He added: “In my view, market uncertainty is leading some surveyors to adopt an increasingly cautious approach when assessing property values.”
Tracey Dixon, Owner at Cardiff-based Pure Mortgage and Protection, a mortgage broker, said “down valuations are certainly causing more disruption than they were a couple of years ago”.
She continued: “In many cases, surveyors are taking a more cautious view of value because of ongoing market uncertainty, while sellers and buyers are still pricing properties based on stronger market conditions.
“The biggest issue is the uncertainty it creates. A down valuation can mean buyers suddenly need a larger deposit, have to renegotiate the purchase price or, in some cases, lose the property altogether.
“Even where a transaction does proceed, it often adds delays, additional costs and unnecessary stress for everyone involved.
“As brokers, we’re increasingly having to manage expectations early and prepare clients for the possibility that the lender’s valuation may differ from the agreed purchase price. Clear communication from the outset is becoming just as important as finding the right mortgage.”
Daniel Meadows, Director at Summit Financial Solutions, isn’t surprised by the rise in down valuations and said inflated asking prices play a role: “There’s no doubt that surveyors are currently taking a more cautious approach, but given the broader economic climate and a property market that isn’t exactly thriving, that’s to be expected rather than surprising.
“On the purchase side, there’s a clear need for estate agents to remain realistic about local market ceilings. Overinflated asking prices ultimately set expectations that cannot be met at valuation.”
It’s a view shared by Evren Ergin, Founder at valuations firm, ValuQ, who said: “It may be an unpopular view but the down valuation is often the only honest number in the entire transaction.
“Look at who sets the others. The estate agent values high to win the instruction. The seller wants the highest figure they can get. The buyer talks it up to themselves to justify the stretch.
“The only person in the chain with no incentive to inflate is the surveyor. A down valuation is usually a delayed bill for an up-valuation months earlier.
“Asking prices have drifted up while sold prices flatlined, and more than half of sellers only complete after a price cut, so the gap was always going to surface somewhere.
“It just surfaces at the survey, after everyone has spent money. Yes, they break deals, around one in eight fall-throughs are lending-related. But the answer is not to attack the one honest valuer in the room. It is to stop agreeing prices a real comparable cannot support.”
