You’ve finally found your dream home, struck a deal below the asking price, and everything seems perfect—or so you thought. The reality of homebuying often includes unexpected hurdles, and for many, a mortgage valuation returning significantly lower than the agreed purchase price is a common stumbling block. This scenario is exactly what one couple faced when their future home was downvalued by £40,000, posing the question: What now?

A downvaluation occurs when a property’s valuation by a mortgage lender’s surveyor is less than the price agreed upon by the buyer and seller. This discrepancy can lead to a smaller loan offer from the bank, leaving the buyer to cover the difference or renegotiate the deal.

This trend is currently prevalent, as Ed Magnus from This is Money explains, due to the volatile market conditions affecting property values. Mortgage brokers are noting a surge in these cases, affecting not just buyers, but sellers and those remortgaging as well.

The Mechanics of Mortgage Valuations

Mortgage valuations are grounded in recent sales data of similar properties in the area, aiming to ensure that the lender’s investment is secure. If a house is purchased for £400,000 with an expectation of a 90% mortgage, a downvaluation to £360,000 reduces the maximum loan to £324,000, instead of the £360,000 initially expected, leaving a gap that the buyer must fill.

Possible Courses of Action

Negotiation:

The first step for many is to attempt to renegotiate the price with the seller, leveraging the fact that any future buyer might encounter the same valuation issue. However, success depends largely on the seller’s circumstances and market dynamics.

Exploring Other Lenders:

Buyers might consider applying with a different mortgage lender, hoping for a more favorable valuation. Yet, this carries risks such as additional credit checks that may impact the buyer’s credit score.

Using Savings:

Should negotiation fail and the buyer is keen on the property, using personal savings to cover the shortfall is an option. This, however, increases financial exposure should property values decline.

Appealing the Valuation:

Challenging a valuation requires substantial evidence, like recent sales data of comparable properties. Success in this arena is rare, but it can be a worthwhile endeavor if the buyer feels strongly about the purchase.

Expert Opinions

Ravesh Patel, Senior Mortgage Consultant:

Patel notes that many properties are currently being downvalued, a reflection of cautious market appraisals rather than future potential. He advises that buyers should consider their long-term commitment to the property and the potential for future value appreciation before deciding to cover the shortfall with savings.

Jeremy Leaf, Former Rics Residential Chairman:

Leaf emphasises the importance of understanding the market conditions and the seller’s flexibility. He suggests that buyers assess other available properties and consider walking away if better options exist or if the seller remains inflexible.

Your Decision

Deciding how to proceed after a downvaluation requires a balanced consideration of market conditions, personal financial situations, and future property value potential. Transparency in negotiations, thorough market research, and perhaps a bit of strategic flexibility can guide buyers through the murky waters of property downvaluations.