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

The Daily Telegraph - Your Money - - How To Sell Your Home For More - By Faith Archer

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 Right­ 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.”

Faith Archer: the buyer of her flat in North Lon­don did not head for the hills

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