Property Buyers’ Dreams in Tatters as Valuation Fears Leave Banks Asking for Bigger Deposits

One mortgage lender raised the offered interest rate by 80pc following a low valuation

By Adam Williams 15 October 2020 • 5:00am

…“There’s a consensus that prices are going to drop and, even though surveyors should give an estimate of current prices, I can’t help but feel they are factoring in events that are yet to happen,” he said.

Property buyer Vicki Wusche said one of her clients had a purchase down-valued by 20pc, leaving their transaction in tatters.

“[The surveyor] supplied a one-page essay about the impact of Covid-19, but it had so many caveats,” she said. “Ultimately he down-valued the property because something might happen. The valuation is not worth the paper it’s written on.”

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Property transactions have been left hanging by a thread as surveyors have insisted that homes are overvalued amid soaring house prices and forecast falls.

Buyers have been asked to find tens of thousands of pounds at the last moment or risk their purchases falling apart, due to surveyors valuing homes at significantly less than the agreed sales price, known as a down valuation. 

This will usually lead to mortgage lenders asking for a much larger deposit. But Telegraph Money has seen one case where a down valuation caused a bank to increase the customer’s mortgage rate by more than 80pc.

Britain is in the midst of a property market boom fuelled in part by the Government’s stamp duty tax giveaway. House prices are soaring with the average property now worth £249,870, according to Halifax, 7.3pc higher than a year ago.

However, there is widespread concern that prices will fall when the tax break ends in April. Experts said this has led to hundreds of cases where surveyors have valued properties at less than the buyer and seller have agreed.

If a property is the subject of a down valuation then mortgage lenders can reduce the amount they are willing to lend against the property, with buyers needing to fund this shortfall themselves. In other cases, banks may still offer a mortgage required sum but at a much higher interest rate. There have also been instances where mortgage offers have been withdrawn entirely.

Down-valuations are most prevalent in areas where the highest price rises are occurring.

Sebastian Riemann of Libra Financial Planning, a mortgage broker, said one of his clients had seen their property purchased down-valued by £40,000. The bank said that the mortgage could proceed but it increased the interest rate from 1.44pc to 2.64pc, a rise of 83pc.

Mr Riemann believes that surveyors are wrongly issuing valuations based on what they expect to happen in the future, rather than the state of play today.

“There’s a consensus that prices are going to drop and, even though surveyors should give an estimate of current prices, I can’t help but feel they are factoring in events that are yet to happen,” he said.

Property buyer Vicki Wusche said one of her clients had a purchase down-valued by 20pc, leaving their transaction in tatters.

“[The surveyor] supplied a one-page essay about the impact of Covid-19, but it had so many caveats,” she said. “Ultimately he down-valued the property because something might happen. The valuation is not worth the paper it’s written on.”

Valuers are paid by the lender and are used to help the bank avoid offering mortgages on over-valued properties. Surveyors can be sued by lenders if they issue an incorrect valuation. Mr Riemann said: “Even though markets are very buoyant, surveyors do have lenders’ interests to take into account.”

A spokesman for the Royal Institution of Chartered Surveyors, a trade body, said valuations were carried out independently to accurately determine market value. Valuations are based on a range of factors, such as historic transactions, economic indicators and local supply and demand.

Comments

Paddington Brown 15 Oct 2020 4:12PM

It’s a well known scam by the banks. Politicians obviously won’t touch it because they are in the pockets of the banks.

It happened to us last year. When the broker initially asked my valuation, I knocked off 10% to be cautious and it was still above the agreed price. After months of form filling and bank dithering we were ready to buy. Then some uninformed surveyor womble ‘approved’ by the bank glanced around the property for a few minutes (totally failed to see the very obvious subsidence!) and down valued by a further 5%.

I was angry and heartbroken, thinking the whole thing had fallen through, but the bank were delighted – they simply bumped up the interest rate to cover their totally fictitious increased “risk”. I was too scared and relieved to say no or protest, our seller was impatient and the price was, in truth, way below market value.

Within 6 months the house had been revalued 20% higher – even higher than my original private estimate.

Do a search for “mortgage downvaluing”. It used to be very rare, now it happens all the time. It is nothing more or less than megapowerful, greedy banks abusing their position and bullying small individuals to paying a bit more every month for years. It is abuse, it is immoral and it is, in all seriousness, a modern form of slavery.

Banksters indeed.

Still, we got a bargain and the subsidence is no great deal to me as I have done much bigger repairs in the past.

Phew!

jack thelad 15 Oct 2020 5:29PM

@Paddington Brown Did you get the seller s insurance to fix the subsidence? If not I doubt you could sell it at all.

Vicki Wusche 15 Oct 2020 5:37PM

@Paddington Brown I had the same thing back in 2008 I was buying 2 flats and a house with Birmingham Midshires and getting a house remortgaged – all the properties were downvalued EXACTLY 5% (not huge but certainly an annoyance).

Strange not all in the same area, not all the same property type and even mix of buy and remortgage.

People need to understand that the valuation that they pay for is NOT for their benefit at all! It controls the flow of applications when lenders too busy or too exposed!

Lewis Wagner 15 Oct 2020 3:46PM

Sadly, bankers behaving sensibly is news.

Paddington Brown 15 Oct 2020 4:36PM

@Lewis Wagner

Surveyors are not qualified to predict future house prices. They should value the house at today’s value and the bank should then up or down grade future value according to their crystal ball.

That would be more honest.

RICS valuations are a joke – I have had them vary (upwards) by 100% over the original figure, all to RICS standards, I kid you not.

jack thelad 15 Oct 2020 5:30PM

@Paddington Brown @Lewis Wagner But the banks need the house as an asset should the buyer stop paying his debts. Sounds sensible to me unlike 125% mortgages from 15 years ago.

Vicki Wusche 15 Oct 2020 5:40PM

@jack thelad @Paddington Brown @Lewis Wagner I agree but who offered the 125% the lender – if they were more sensible then they could also behave more transparently
Its like going for a meal and the menu says Steaks is £15 and then when you order it and eat it the resturant says oh the farmer thinks the price is going to drop so we need to charge you more

(Miximg my metaphor but you get the drift :) )

David Burdon 15 Oct 2020 12:37PM

Quote: Mr Riemann believes that surveyors are wrongly issuing valuations based on what they expect to happen in the future, rather than the state of play today.

And this guy is a qualified mortgage broker! He obviously wasn’t around in 2008. If the underlying market is heading for a downturn, the surveyors represent the mortgagors and are there to protect their investment over the length of the mortgage, not the next 6 months.

Andrew Badger 15 Oct 2020 2:04PM

@David Burdon Do you or any of the surveyors have a crystal ball?  These idiots that are down-valuing houses are causing the trend they claim to be afraid of.

David Burdon 15 Oct 2020 5:09PM

@Andrew Badger Mortgage interest rates have already bottomed and are starting to climb. The glory days of property price rises are over. We could be back to a similar position as the 1990s. Between 1990 and 1997 house prices stayed pretty stagnant despite 25% inflation. With inflation at close to zero, prices could actually fall.

fred featherhound 15 Oct 2020 2:05PM

Nor was he around, I guess, during the negative equity days of the early’90’s. But that surely won’t happen again, will it now?!

John Mechan 15 Oct 2020 12:14PM

Good. Cut the greed

Michael Simpson 15 Oct 2020 11:12AM

“increase the customer’s mortgage rate by more than 80pc” ….. throws hands in the air in shock and horror.

Until you realize that that COULD mean they were offered a 1% mortgage which was then raised to 1.8%, but hey, 80% sounds MUCH more dramatic.

(1.8% – as an example, How many of you remember the beginning of the 90’s when mortgages could be 10-15%?)

Brendan Berry 15 Oct 2020 12:50PM

@Michael Simpson Remember it well. I bought my first house then in Dec 1990 and mortgage rate was 15.4% with C+G. The prices then were about a third of what they were today, but the cost of borrowing now is about a third of what it was then. So basically, things are relative, but then the problem wasn’t getting on the ladder, but staying on it. Now it’s having enough to get on it in the first place….. and goodness knows what will happen when rates do finally rise again!

roger white 15 Oct 2020 11:07AM

Nothing new here.

Valuations depend on how keen the lenders are to lend or not as always. The lender’s panel of surveyors know which way the wind is blowing.

Andrew Badger 15 Oct 2020 2:07PM

@roger white No, the lender’s panel of surveyors are deliberately undervaluing housing stock on the basis of allegedly knowing which way the wind is blowing, which of course they don’t.  In such unprecented times, any one who says they know what is likely to happen in the future is either arrogant, or misguided.

Fear driving valuation behaviour, which in turn will drive the market down.  Cause and effect.  They will kill the very market that they profit from if they continue to transact valuations in this way, because it will prevent anyone moving.

jack thelad 15 Oct 2020 5:32PM

@Andrew Badger @roger white If you can’t envision the housing market stagnating when their are going to be 3-4 million unemployed then you really shouldn’t be in the job.

Finian Manson 15 Oct 2020 10:38AM

Surveyors have been down valuing properties for at least a year even when the adjacent identical property has sold for the same or more!

Jonathan Sutton 15 Oct 2020 9:58AM

A mortgage broker and a “Property Buyer” who doubtless carry no RICS accreditation, PII or ongoing responsibility as to the robustness of the loan/deal they structure weeping over long-overdue valuation prudence. Priceless…….!

They’re talking through their pockets due to lost fees.

Vicki Wusche 15 Oct 2020 4:00PM

@Jonathan Sutton

I totally agree in the past surveyors have been over excitable and the 80’s and then 2007+ they economy showed us how the market can quickly change.

I want a fair valuation for my portfolio and those of my clients … valuations are based on evidence – of current sold figures and now it seems a guess at what the future holds, rather than a sensible what would happen if a “quick sale” was required.

Where is the evidence of a 20% downturn?

Yes surveyors need to protect the lender from a bad investment in a new property, and the mortgagee from taking on a debt they can’t afford – but as others have commented this behaviour of down valuing WILL trigger the property slump they are not just forecasting but causing.

My client wanted to invest – they are experienced and asked for my help to save time … in good faith I suggested a property that met their requirements. We are both fully aware that the market will fall either as redundancies or a change in the stamp duty rule moves in first quarter 2021. It still stacked as a good deal. My client spent money on the survey without knowing that the surveyor was going to perceive a 20% drop in valuation. They lost £2,000 on solicitor costs.

Artifical surveys, rate rises and stamp duty, on top of Section 24 tax changes are all surpressing a market that provides a fundamental service – decent homes for decent people that need some where to live – stop the interference :)

jack thelad 15 Oct 2020 6:17AM

Seems a very sensible move by the banks for a change . Time to stop the stamp duty holiday and let the housing market find its level.

Robin Hood 15 Oct 2020 8:14AM

Or do away with stamp duty permanently and let the housing market find its level.

David Burdon 15 Oct 2020 12:42PM

@Robin Hood Or return Stamp Duty to a sustainable level. For example 2.5% from £250k all the way to £1m. Even the current 5% disincentives people to move with their work. Leading to lots more commuting. Especially in the south-east.