If you want to know what you can do when you get a mortgage valuation that is lower than the agreed property purchase price, then this article will help.
Buying a home can bring up many challenges, one of them can occur when the mortgage valuation is lower than the purchase price.
Essentially, when a mortgage lender finds that the property’s value is less than the borrower is expecting, then this will be referred to as ‘down valuation’. And there are many reasons why properties get down valued.
Using our experience of buying and selling several properties over the years, we will explain what option you have when your dream home is down valued and why it can happen.
Handling a down valuation
Having your dream home down valued as part of the mortgage valuation can be distressing at first, because you might fear you will lose it. However, that doesn’t necessarily happen.
There are ways to deal with a mortgage valuation that is lower than the agreed purchase price.
1. Check your finances
If the property you want to buy has been down valued, the first thing you should do is to check your finances. Are you able to still buy the house despite the down valuation?
The thing to keep in mind here is that the mortgage amount you are looking to borrow will be based on a percentage of the home’s value. This means, if the property has been down valued, the lender will be looking to reduce how much they are willing to loan.
In order to still be able to buy the house you can:
- Increase your deposit to cover the gap between the valuation and the purchase price
- Find another source of funding (gift from family or friends or a bridging loan)
This will reduce the loan-to-value (LTV) ratio and the risk for the lender, but it will also increase your upfront costs and reduce your savings or equity.
If you aren’t borrowing up to your limit, you could apply for a higher LTV mortgage. To compensate for the difference between downgraded valuation and agreed purchase price, you could increase your loan-to-value.
However, this means that the monthly payments will increase, so it is important that you make sure you can still afford the higher mortgage payments. In our experience, this is not a decision that you should take lightly.
Stretching yourself too much could cause you problems down the line. For example, when your fixed-term deal runs out, and you have to remortgage. If mortgage rates have risen, you might end up with higher monthly payments, which you might not be able to afford.
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2. Challenge the valuation
Not every lender is open to appeals. They are also unlikely to be successful, but some may be willing to let you appeal their valuation. This is where you’ll need to do your homework and seek out evidence of what similar homes sold for in the area.
You can also ask the lender about the details of the valuation and ask, for example, whether the surveyor checked inside the property because they may not be aware of major renovation repair work to boost its value.
This might be a long shot, but if you just can’t adjust your finances, it might be worth a try. But be prepared for it to fail.
3. Renegotiate with the seller
If your finances don’t allow you to absorb the difference and the appeal against the lower valuation has not been successful, you can try to renegotiate the price with the seller.
This will be a difficult conversation, but having a lower value valuation isn’t just a problem for you as the buyer, but also for the seller. It is likely that a new buyer who needs a mortgage will have the same problem.
This will limit the buyer pool to cash buyers or people who don’t need a mortgage. It’s worth pointing this out to the seller during the negotiations.
Also, if the seller has already found somewhere else to buy and doesn’t want to delay moving, then they may be willing to renegotiate.
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4. Reapply for a new mortgage
If all the above fail, but this property is your dream home, then you can try to reapply for a new mortgage with a different lender.
Again, they will require an independent valuation that you’ll need to pay for. There is a chance that a different surveyor won’t down value the property. However, there is also a chance that you encounter the same problem.
It’s important that you never lose sight that the final say on a property’s valuation will always lie with the mortgage lender’s surveyor because they have more information to hand, and they have a professional obligation to deliver an informed and accurate valuation.
Before moving on, it’s also worth highlighting that should an independent surveyor down value the property you want to buy, then this is also in your interest because you will not be paying more than is necessary for a home that is not worth what you think it is.
You should also consider that this could have an impact on your credit rating. While a second application shouldn’t stop you from getting another mortgage, you can’t just continue to apply for a new mortgage until you find a lender that values the property in the way you want.
So before you apply with a different lender, we would advise you to speak to an independent mortgage adviser.
5. Discuss with the lender if there is a solution
Depending on why the property was down valued, there might be a way to still get the money you want to borrow. For example, if there is a structural issue, the lender might agree to something called a retention.
A retention is where they withhold part of the mortgage amount until specific work has been carried out.
When we bought our last home we had a bad mortgage valuation that caused us to have to pull out of the sale altogether. Unfortunately for us, the mortgage provider didn’t just down-value the property we wanted – they refused to give a mortgage on it at all!
You see, they found structural issues with the property where an upper floor extension had been built on top of a garage that wasn’t built to take the weight. We were prepared to do the work required to make the property structurally safe and asked the mortgage provider if they would give us the mortgage but with a ‘retention’.
However, they wouldn’t entertain this and just flat out refused to give us a mortgage, meaning our only options were to either pull out, or try and find a new mortgage provider who would overlook the issue. We chose to pull out.
It is worth contacting your lender after your property has been down valued to find out why exactly and if there is anything that could be done.
6. Pull out of the sale
The last resort will be that you have to pull out of the sale. If none of the above work, then this is the final option. We know it can be heartbreaking to lose the house you have fallen in love with, but sometimes it can’t be avoided.
And who knows, you might find a property that fits your needs even better. This happened to us after we had to withdraw from the house that the lender didn’t want to give us a mortgage for.
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When The Mortgage Valuation Is Lower Than The Purchase Price
A mortgage valuation lower than the purchase price is a situation that can occur in the UK property market and affect both buyers and sellers.
It can be caused by various factors, such as market fluctuations, the surveyor’s judgement, the property’s condition, or the buyer overpaying.
It can also have other implications, such as affecting the loan amount, the price negotiation or the completion of the sale.
However, it doesn’t have to be a problem that cannot be resolved.
There are several options and strategies that both parties can consider and apply to overcome the down valuation and reach a satisfactory agreement.
