A down valuation occurs when your prospective mortgage lender sends a surveyor to look at the home you’re hoping to buy and decides it is worth less than you are suggesting it is. In other words, you’re asking for a 90% mortgage on a £250,000 home, but then the mortgage provider says the home is only worth £200,000.
Yep, that’s right. The lender can decide a home is worth less than you’re buying it for and therefore refuse to give you the size of mortgage you need.
On that £250,000 home, the 90% mortgage you were hoping for comes to £225,000. But, when the lender down-values the home to £200,000, the 90% mortgage is only £180,000. You are left with a £45,000 deficit. All too often, this causes the sale to fall through.
What to do next
The most obvious option is to come up with the extra money you need. This is, however, much easier said than done and most of us don’t have an extra 40-grand-or-so lying around.
Your other option is to go back to the seller and try to negotiate a lower price for the home, one which more closely matches the value given by your mortgage provider. Again, though, it’s not likely that they will agree with you.
The only thing left to do is try a different mortgage provider, hoping that the next one agrees that the home is worth £250,000. Otherwise, you’re probably going to have to swallow your losses and walk away.
Down valuation & Covid-19
Of all the tragedy and hardship that Covid-19 has brought the world, we can now add down valuations to the list. Due to the economic and market uncertainties caused by the pandemic, home values are more uncertain than they have been in a long time.
The problem is, nobody knows how long it’s going to go on for or how bad it might get. When it comes to property values, therefore, there is a lot of disagreement because everyone is having to guess what the future holds.
Sadly, this means down valuations are on the rise as mortgage lenders are being very cautious about what money they lend to who.
Have you fallen victim to a down valuation? How did you handle the situation? Share your experience with our readers by dropping a comment in the section below.