Surveyors clamp down in the wake of US housing crisis
As fears grow that the problems in the property market could cross the Atlantic, valuers are becoming more cautious with their valuations
SURVEYORS are starting to clamp down on mortgage valuations, as lenders prepare to protect themselves against the risk that house prices may falter and even fall.
As fears rise that the housing crisis under way in America could soon cross the Atlantic, it is more important than ever that vendors should consider all their options when trying to obtain the best price possible.
Down valuations occur when the surveyor decides that the property value for mortgage purposes is less than the agreed purchase price.
Ray Boulger from independent mortgage brokers John Charcol said: “When the market is buoyant, down valuations are infrequent, because lenders can afford to be more generous.
“But now the market is moving into an environment where house prices are flat-lining or even going down, valuers are much more likely to be cautious.
“Surveyors have to be careful not to put themselves in the firing line in case the property is repossessed in the future, and ends up being sold at a loss.
“We have noticed recently that the incidence of down valuations has increased over the last couple of months, as the market has slowed down. Most down valuations have been in the 5pc to 10pc range, with the occasional one which is much heavier.
“One of the major valuers has been instructed by a top 10 lender to be more cautious about its valuations.”
Mr Boulger refused to identify the lender but he is not the only analyst to notice a cold wind blowing in the housing market. Figures from property website Rightmove.com this week showed a marked slowdown with only a modest monthly increase of 0.6pc in house prices from July to August, with London asking prices falling for the first time in a year, even if only by 0.1pc.
Miles Shipside, commercial director of Rightmove, said: “This is the first time for over a year and a half that we have seen four consecutive months of such moderate increases.
“This much slower rate is consistent with prices and the market starting to adjust to the increased costs of home ownership.”
When house prices fell and repossessions rose in the early 1990s, following a succession of interest rate rises at the end of the 1980s, valuers were criticised for being over-optimistic about how much properties were worth, leading to problems of negative equity where homeowners had borrowed more than their homes were now worth.
James Scott-Lee, spokesman for The Royal Institution of Chartered Surveyors, confirmed: “Surveyors need to look at the whole market and not just the particular property. Because prices are cooling, we may well see more instances of down valuations.”
The current incidence of down valuations varies depending on the area of the country, according to mortgage brokers Savills Private Finance.
Melanie Bien, from Savills Private Finance, said: “Some brokers have seen no problems at all, for example those concentrating on prime central London and Nottingham.
“However, in Leeds the picture is very different, where all valuations are down at present, particularly on the buy-to-let side. More clients are struggling on valuations, suggesting an over-priced market.
“The main problem seems to be unreasonable vendors putting ridiculous demands on purchasers, which means the buyer has to pay a premium to secure the property.
“In other instances, if a buyer really wants a property and there is lots of competition, they may offer over the odds only to find that the lender will not then agree a mortgage for that amount because the surveyor has down-valued it.”
While each decision will be specific to the individual property, David Hollingworth from mortgage brokers London & Country said that “undoubtedly there are a number of examples of down valuations and some can be quite significant, as much as 10pc”. He said: “Some valuers will be more cautious if they feel that a market is a bit too frothy – there has been concern from lenders over the level of new-build flats particularly on the buyto-let front, and certainly valuers will also raise concerns on the rental demand in a saturated market.
“Down valuations happen quite a bit on remortgages, when some people just over-estimate how much their property is worth. They see what a property sold for on the same street and assume theirs is worth the same, when the other property has been extended and improved. Down valuations on purchases, when the property price has been vetted from a wider market perspective by an estate agent, are less frequent.
“With buy-to-let properties, not only can the actual property price be downvalued, but the valuer could also say that the rental income could be less than you expected. This has an impact because the lender will be basing the amount they will advance on the rental income.”
As a buyer, if your dream home is valued at less than the agreed price, you may welcome the opportunity to renegotiate a lower price.
Where this is not possible, if you still wish to pursue the property and are convinced you are not paying a premium, you can challenge the valuation.
Mr Boulger said: “If you or your estate agent can provide details of comparable properties, as similar as possible to the one you are selling in reasonably close proximity, sometimes the valuer may increase their valuation.
“If you get an impasse where the valuer will not budge, you could talk to your lender and ask for another valuation, or where you are already putting down a good deposit, be prepared to borrow a higher proportion of the property value to make up the difference.
“Another option would be to try a different lender completely, and get a different valuer.”
However, beware that because mortgage lenders tend to pick surveyors from a panel of firms, even if you change lender you could still end up with the same surveying firm.
On the seller’s side, if your buyer demands a lower price after a down valuation, Mr Hollingworth said: “You may not be prepared to budge if you believe that because one person offered the original amount, so will another.
“Where the buyer contests the valuation, even if the valuer does move the valuation upwards, it might not necessarily move as far as the original price.
“If you reach the point where you have two down valuations, as a seller you may need to decide whether you will compromise on the price, or find a buyer who can find the extra cash without relying on a mortgage.”
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