How a low valuation can leave you feeling really down

Published 22nd Dec 2008

Long-time homeowners coming to the end of mortgage deals are being forced to take more expensive loans than they had planned for because of lower-than-expected valuations on their properties.

Surveyors are wrong-footing many households seeking mortgages with downward corrections in value, known as "down-valuations".

The result is that remortgaging homeowners who mistakenly bank on high levels of equity are instead having to take out more expensive mortgages because lenders are now only offering the lowest priced mortgages to those with at least 25% equity in their home.

Sellers counting on an inflated selling price to help them move to bigger homes are also being forced to reassess.

Many home owners have been at the sharp end of this phenomenon: a recent on-off sale nightmare for Catherine Howell, 37, from Ware in Hertfordshire, saw a drop of nearly 12% in the valuation of her property over just 12 weeks.

"In July, our property was valued at £390,000 by Abbey; just three months later, a new survey put it at £345,000," she says. "When we asked the surveyor, he told us that, to be on the safe side, the price had been marked lower."

Londoner David Stuarts, who had been on the point of remortgaging at Abbey, was told that his flat was worth £320,000, even though a nearby flat "virtually matching us in size and rooms" had recently sold for £370,000. That fact seemed to count for nothing in Abbey's valuation.

A bleaker valuation than expected wiped 10% off the property of Scott Weber, 37, and wife Nicci from Nottingham, forcing them to overpay on their mortgage just to qualify for a decent rate with Lloyds TSB. "It was a massive reality-check. The lower valuation gave us a loan-to-value of 80% instead of 75%, and we had to overpay so we could secure a cheaper mortgage deal," Scott says.

Their concerns are shared by a number of mortgage brokers and estate agents, who have watched deals collapse in the wake of lower valuations. They blame surveyors for being too negative. "Down-valuations are not helping the situation," warns Mark Harris at broker Savills Private Finance. "Borrowers are finding that surveyors are being incredibly cautious."

Surveyors argue that there is no such thing as a down-valuation. "Surveyors reflect the market, they don't predict it," says David Parkin, director of Lamberts Chartered Surveyors.

But there is something more controversial encouraging surveyors to be cautious: the fear of being sued by lenders. "We're the only parties in all this who can get sued, which does mean you become rather cautious," says Parkin.

And it's not just independent surveyors who are contributing to the pressure: lenders' internal valuations play a part too. Borrowers with Alliance & Leicester who decide to stick with their lender when remortgaging won't be pleased to discover that it uses the Halifax House Price Index - the gloomiest of all the property indices, which this month suggested prices had fallen by 2.6% in November alone, and 14.9% over the past 12 months - for its automated valuations. Homeowners hoping for a valuation that would allow them to qualify for cheaper rates, now find themselves pegged back.

A spokeswoman for the bank acknowledges the index has shown some of the biggest price falls but points out borrowers can appeal.

It's not much better for existing borrowers with Nationwide. It uses its own price index to revalue homes, but its latest index shows an annual fall in November of 13.9%.

Not all lenders refer to indices displaying such large falls. At Lloyds TSB, the calculations for valuations for existing customers use figures from the Land Registry, which typically has been much less pessimistic. The government's record shows an annual fall of 10.1% in October compared with 14.6% at Nationwide and 13.7% at Halifax.

If you are unhappy with your valuation, you can challenge it, but be prepared to put in some hard research. A good starting point is to gather evidence of at least three similar properties in your area that have sold at higher prices. In the current atmosphere, that won't be easy.

Alternatively, you could simply ask for a second valuation by the lender - but you will probably have to pay for it. Be warned, too, that the lender's decision after the "appeal" valuation is final.

Parkin says homeowners must accept a new reality: their homes aren't worth what they used to be. "People just don't like the idea that their homes are worth a lot less; people read about big falls elsewhere but always think, 'Well, that's a big loss but it still won't affect my house'."

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