Valuation concerns leave banks asking for bigger property deposits

Property transactions have been left hanging by a thread as surveyors insist that homes are overvalued amid soaring house prices and predicted falls.

Buyers have been asked to look for extra tens of thousands of pounds at the last moment or risk their purchases falling apart, due to surveyors valuing homes at significantly less than the agreed sales price. This is known as a down valuation.

This will usually lead to mortgage lenders asking for a much larger deposit. But Telegraph Money has seen one case where a down valuation caused a bank to increase the customer’s mortgage rate by more than 80pc.

Britain is in the midst of a property market boom fuelled in part by the Government’s stamp duty tax giveaway. House prices are soaring with the average property now worth £249,870, according to Halifax, 7.3pc higher than a year ago.

However, there is widespread con

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‘I feel that surveyors are now factoring in events that are yet to happen’

cern that prices will fall when the tax break ends in April. Experts said this had led to hundreds of cases where surveyors had valued properties at less than the buyer and seller had agreed.

If a property is the subject of a down valuation then mortgage lenders can reduce the amount they are willing to lend against the property, with buyers needing to fund this shortfall themselves. In other cases, banks may still offer a mortgage required sum but at a much higher interest rate. There have also been instances where mortgage offers have been withdrawn entirely.

Down valuations are most prevalent in areas where the highest price rises are occurring.

Sebastian Riemann of Libra Financial Planning, a mortgage broker, said one of his clients had seen their property purchased down valued by £40,000. The bank said that the mortgage could proceed but it increased the interest rate on the loan from 1.44pc to 2.64pc, a rise of 83pc. Mr Riemann believes that surveyors are wrongly issuing valuations based on what they are expecting to happen in the future, rather than the state of play today.

“There’s a consensus that prices are going to drop and, even though surveyors should give an estimate of current prices, I can’t help but feel they are factoring in events that are yet to happen,” he said.

Mortgages rates for customers with small deposits are now significantly higher than those with larger down payments. Mr Riemann said this gap was increasing, meaning that those who suffered a down valuation were being more harshly penalised than previously.

“Mortgage rates are going upwards, and by the time surveyors come back you can see a major differential in the rate,” he said.

Property buyer Vicki Wusche said one of her clients had a purchase down valued by 20pc, leaving their transaction in tatters.

“[ The surveyor] supplied a one-page essay about the impact of Covid-19, but it had so many caveats,” she said. “Ultimately he down valued the property because something might happen. The valuation is not worth the paper that it’s written on.”

Valuers are paid by the lender and are used to help the bank avoid offering mortgages on overvalued properties. Lenders can sue surveyors if they issue an incorrect valuation.

Mr Riemann said: “Even though markets are very buoyant, surveyors do have lenders’ interests to take into account.”

A spokesman for the Royal Institution of Chartered Surveyors, a trade body, said valuations were carried out independently to determine market value accurately. Valuations are based on a range of factors, such as historic transactions, economic indicators and local supply and demand.

“When facing economic challenges such as Covid-19, or when transaction levels are perhaps not what they might be, surveyors have to be very certain they can evidence the value,” he said.