Down valuations: what to do if a mortgage lender says your dream home is worth less than you offered for it

The values of more than half of London homes were cut in the past six months. If it happens to you, don’t panic.
Daniel Lynch
Felicity Hannah2 December 2020

The stamp duty holiday ends on March 31, which has caused a surge in home purchases. But with a rocky year predicted ahead, there’s evidence that mortgage lenders are erring on the side of caution and may “down value” a home if they disagree with the buyer’s offer.

This means the bank or building society estimate the property is worth less than a buyer has offered for it and they are not willing to take the risk on the loan.

A survey by Bankrate UK reports that 46 per cent of buyers have seen their prospective new homes down valued by mortgage lenders in the past six months. In London, that rose to 59 per cent of properties.

If this happens and you still want to proceed at the agreed price then you will have to make up the difference yourself by increasing your deposit because your lender won’t lend it to you in a mortgage.

However, if you have already scraped together as much money as you can then the purchase might fall through all together.

Can you avoid a down valuation?

“To reduce the risk of a down valuation you need to check that what you are offering is realistic,” says Paula Higgins, chief executive of the HomeOwners Alliance.

You can check current local asking prices through online property portals such as Rightmove, while you can find out how much homes nearby have sold for via the Land Registry.

If you want to make a lower offer then you can also consider if the property has been on the market for a while, as a seller might be more willing to accept a price cut if so.

Be ready to appeal

It may be possible to appeal a down valuation but buyers should make sure they have facts and arguments in their corner first.

“You can reduce the chances by having comparable property examples to hand,” says north London estate agent, Jeremy Leaf.

“If you are making an offer, then you are likely to have looked at other similar properties so keep the details and make sure you have access to them later down the line.”

“You’ll need to find three comparable sold-house prices in the area to appeal, and ideally within the last six months,” advises Higgins.

What are my options?

If a property has been down valued then there are still options, including trying a different lender, but that can be quite time-consuming.

Higgins suggests that homebuyers use this as an opportunity to negotiate with the vendor: “Remember, other buyers will be in the same boat. Sellers who are keen to take advantage of the stamp duty holiday themselves may be willing to drop their price in order to meet the deadline.

“If the down valuation is in any way down to an issue highlighted in the building survey then you should deploy a pincer movement; speaking to the vendor to explore whether they will drop the price while also challenging your lender’s valuation.”

Should I still try to buy a property if it's been down valued?

A down valuation can be upsetting if it risks derailing a sale but it is important to consider the reasons behind it.

“Sometimes it can actually be a blessing and you can find out you’re overpaying,” Leaf says. “It’s good that it gets highlighted by the surveyor. And, quite rightly, surveyors and lenders want to make sure that if the market does fall back a little bit, that someone isn’t overpaying.”

Think twice before adding stamp duty saving to your offer

If you decide to put more money into the purchase to overcome a down valuation then there’s a significant potential pitfall to be aware of.

“Don’t rely on using the money saved as a result of the stamp duty holiday to fund the purchase,” warns Higgins. “You need to keep that money to one side in case you miss the deadline.”

With an increasingly busy housing market as buyers try to scrape through before then, that’s a risk buyers need to take seriously.