A troubling trend has emerged in the UK housing market, leaving many homeowners and potential buyers grappling with unexpected financial hurdles. Dubbed as ‘down valuations,’ this phenomenon is causing significant distress among those looking to remortgage their homes or step onto the property ladder.
‘Mortgage headaches’ are becoming more common as a growing number of homeowners find themselves paying considerably more for their home loans. This sudden shift is attributed to surveyors, who, amid the current economic uncertainty, have adopted a more cautious stance, resulting in lower property valuations. Imagine intending to remortgage your home, valued at £300,000, only to discover it’s now considered worth £50,000 less by the surveyor. This stark reality is what some are facing, with one broker witnessing such significant reductions firsthand.
Why Are Down Valuations Happening?
The root of the issue lies in the current climate of confusion and instability regarding future house prices. Mortgage brokers point out that the rapid changes in mortgage rates are causing lenders and prospective buyers alike to second-guess the market’s direction. Consequently, when a property is valued lower than the price agreed upon by the buyer and seller (or the homeowner’s expectation in the case of remortgages), it spells trouble. Homebuyers might find themselves unable to secure a mortgage for the purchase price, while those needing to remortgage may end up with less favorable loan-to-value ratio products, leading to higher interest rates.
Understanding ‘Down Valuations’
A ‘down valuation’ occurs when a surveyor’s assessment of a property’s worth disagrees with the valuation of the homeowner, buyer, or seller. This discrepancy can have profound implications. Richard Jennings, a broker, has noticed a significant uptick in down valuations since December. Where previously, the incidence of properties being undervalued was between one to two percent, it has now jumped to 15 percent for remortgage applications and five percent for purchase transactions.
The Economic Backdrop
The surge in down valuations can be linked to the broader economic context. “We’re officially in recession, and lenders are apprehensive about the potential for property values to drop further within the year,” explains Graham Cox from Self Employed Mortgage Hub. This period of recession has led to a market filled with mixed signals, where offers on houses are often made very close to the asking price, reflecting the prevailing uncertainty.
For those caught in the down valuation trap, the options are limited and fraught with difficulty. Buyers may need to find additional funds to bridge the gap between the mortgage offer and the sale price, negotiate with the seller for a lower price, or, in some cases, abandon the purchase altogether.