Property purchases collapse as surveyors begin to cut their house price estimates

Home buyers and sellers have been left in limbo as surveyors have dramatically reduced property valuations because of the coronavirus crisis.

With house prices falling in many areas and transaction levels down, surveyors have started to issue more cautious estimates amid fears that properties could be overvalued. A lack of post-Covid housing market data has contributed to the problem, experts said.

If the valuation is significantly lower than the agreed sale price, it can cause lenders to withdraw mortgage offers and sales to fall through. This phenomenon is known as a “downvaluation” and occurs when a bank’s surveyor values a property.

Estate agents and mortgage brokers have reported cases where downvaluations have knocked tens of thousands of pounds off a property’s price. In one instance a surveyor valued a property at £300,000 less than the agreed sale price.

Lenders can then withdraw offers if they believe falling house prices will cause the borrower to plunge into negative equity. They may also lower the mortgage offer, leaving the buyer to make up the difference with cash.

Existing homeowners trying to remortgage their loan to a cheaper deal with another bank can also fall foul of down-valuations.

Industry experts said a lack of data was posing a major problem for surveyors, many of whom had been unable to visit properties in person.

Social distancing measures have caused the number of physical valuations to fall. Instead, surveyors have relied on computer models to determine house values without visiting a property. However, as transactions have slumped in recent months, there is less reliable data on which valuers can base their decisions.

There are generally between 90,000 and 100,000 property transactions in Britain in a typical month, but the figure slumped to 41,960 in April. Transaction levels rebounded to 63,250 in June, but many of these sales were agreed before the crisis hit. Given that it takes months to complete a purchase, there are fears that these figures do not fully reflect recent house price falls. The Government’s own price index has been suspended since March.

Jonathan Harris of Forensic Property Finance, a mortgage broker, said he saw a home down-valued from £1.4m to £1.1m last month, a drop of 21pc. Mr Harris said the surveyor gave no justification, but he understood the drop was due to concerns about the market.

Jiten Varsani of London Money, another broker, said he had seen a home valued at £340,000 when a sale price of £360,000 had been agreed. He said over-reliance on computer models could lead to properties being wrongly valued. “My worry about automated valuation is that, without physically seeing a property, you might be comparing one with another down the road that is the same size but in exceptionally poor condition,” he said.

Jeremy Leaf, a London estate agent, said it was not uncommon to see downvaluations of 5pc.