What to do if your house gets down valued – without losing a deal

Trying to put a value on a property is a delicate business; a complex equation factoring in size, location, condition, rarity, kerb appeal, and the state of the housing market, present and future.

And some people believe that in a free market a property is simply worth what somebody is willing to pay for it.

This may be true for cash buyers, but for anybody who requires borrowing there is a complicating factor: the mortgage valuation. This is the process where, after a buyer has applied for a mortgage, their lender will get someone to check whether they think the property is worth what they’re asking to borrow. 

In a jittery market, it is increasingly likely that the bank-employed surveyor who values your home will err on the side of caution and come in below the agreed sale price, leaving you facing a financial black hole and a serious problem.

Here, Telegraph Money explains why properties can get down valued – and what you can do to keep the deal.

Why do down valuations happen?

Greedy sellers are one cause of down valuations, according to buying agent Nigel Bishop of Recoco Property Search, who has seen a “clear increase” in cases over the past couple of years. 

“Some sellers are still basing their asking price on the demand seen during the pandemic,” he said. “The market has very much adjusted since then, which leads to more lenders determining a lower property value.”

Mark Lawson, partner at The Buying Solution, says lack of confidence in the market is another factor.

“Given the slow start to the year, the lack of current deals, and the prospect of two major elections looming, coupled with turbulence in the Middle East and Europe – and therefore the potential for a slow market for the rest of 2024 – it is not surprising that valuers are being more cautious than usual,” he said.

But down valuations can also happen in a hot market. When buyers are competing against each other to buy, they may end up pushing offers above local ceiling prices in order to clinch a deal, and a surveyor may step in as a voice of reason. 

And in any kind of market it can happen if a surveyor spots problems with the condition of the property, which they believe will impact its resale value, and has not been priced into the deal.

How to get around a down valuation

Whatever its exact cause, a down valuation is a property headache all round, whether you are a buyer, a seller, stuck in a chain, or hoping to remortgage.

The good news is that it doesn’t need to spell the death of a deal.

Increase your deposit

If a lender doesn’t agree to stump up the amount of borrowing it’s been asked for, the buyer can increase their deposit to cover the shortfall. According to research from HBB Solutions, a professional property buyer, the average down valuation stands at 2.8pc.

How feasible this is depends on the property price, and what the buyer can afford. With average house prices in England standing at just over £300,000, according to the Office for National Statistics, this represents a gap of around £8,000. 

But in London, where the Halifax House Price Index finds the average price stands at almost £540,000, that gap jumps to around £15,000. A £1m home would see an average down valuation of almost £30,000.

“I have had clients who have dipped their hands into their own pockets because they are fixated with the property,” said Riz Malik, director of Essex-based R3 Mortgages.

And, if the sum of money isn’t huge, it may be more efficient to take the hit – particularly if you are looking to buy a long term home.

“Having to start again and look for a new home can be a costly exercise,” said Amy Reynolds, of estate agency Antony Roberts. Increases to the property value over a longer period will likely outweigh a slight overpayment at the outset.

Cut the property price

If the buyer is unwilling or unable to add more cash to their deposit, the vendor could agree to slash their price in line with the valuation – although they may, not unreasonably, be unwilling to lose money on the say-so of their buyers’ lender.

If you want to persuade your buyer to drop their price then Richard Freshwater, director of Cheffins estate agents, said you will need to put up a convincing case. “Our advice is to put as much evidence as possible in writing,” he said. 

“If it’s due to an unexpected problem, such as damp or a structural problem, detail what the issue is and how this reflects the value of the property.”

Appeal the decision

If negotiation doesn’t work you can try to fight the decision, by appealing against the mortgage valuation.

Ideally, this should include proof of recent sales that show similar properties in the area being sold for a similar amount, but Mr Malik warned that the drop in transaction numbers since 2022 means there is a real shortage of proof of where the market currently stands.

Even with comparable sales, he thinks buyers need to manage their expectations. “I have been doing this for 10 years, and I can count on the fingers of one hand the number of times valuations have been changed,” he said.

Laura Bairstow, founder of The Mortgage Masters, works across Leeds and Wakefield where, she said, down valuations are currently rife. “We are noticing it more when the buyer has got quite a small deposit, 5pc or 10pc,” she said. “That could be a coincidence, but I doubt it.”

She agrees that it is hard to persuade a lender to change a valuation, but thinks it is worth a try if they have only carried out a desktop valuation, and have not actually seen the property in the flesh. “This means they don’t see its condition or any renovations carried out, and a visit might lead to a different result,” she said.

“You could also try an alternative lender who might be more favourable. But you never know which surveyor they are going to send out – there are no guarantees.”

Down valuations when you remortgage

When you remortgage – ie switch to a new mortgage deal with a new provider – you’ll need to make a new borrowing request from the lender, even though you already own the property. 

Despite one lender agreeing your property is worth a certain amount when you bought it, there is still a chance of it getting down valued if you go to a new lender for your next mortgage deal. 

This is more unusual, as you’ll have increased your equity in the property since you bought it, and property values tend to increase over time – but it is still possible.

For example, say you bought your home for £500,000, and have an outstanding mortgage on £450,000 – you’ll have £50,000 equity, 10pc of the property. 

But if a lender’s survey gives the property a value of £480,000, you’ll only have £30,000 equity of the mortgage you’re seeking – or 6.25pc. This could cut the number of mortgage options you’ll have, and they may come with higher rates. 

How to prevent down valuations

Buying agent Camilla Dell, managing partner of Black Brick, said that the best way to avoid getting into a down valuation situation is to negotiate hard from the start of the buying process, and not be tempted to overbid because the market is frenetic, or you are bored of looking.

This means doing plenty of research on the local market and recent sales, and not getting carried away in a competitive bidding scenario which can put you at loggerheads with your bank.

“Bank valuations are always cautious,” she said. “They are there to protect the lender, and therefore may not always come in on target.”

As a seller, you should also be realistic about your property’s sale price – rather than optimistic. 

If you’re selling with an estate agent, they should have knowledge of what comparable properties sell for in your area, but you can also look into this yourself – property portals will show asking prices for nearby properties, and online valuation tools can help give you an idea of value.