Should a Down Valuation Be Seen as a Negative or a Reflection of the Current Market Value?

What is a Down Valuation?

A down valuation occurs when a lender’s surveyor assesses a property’s value at less than the agreed purchase price or expected remortgage valuation. For instance, you may have agreed to purchase a property for £250,000, but the lender’s surveyor values it at £240,000. This discrepancy results in the lender basing their mortgage offer on the lower valuation rather than the agreed price, which can create financial challenges for the buyer.

In such cases, buyers can attempt to renegotiate the price with the seller, increase their deposit to cover the shortfall, or withdraw from the transaction to avoid overcommitting themselves. For those remortgaging, a down valuation could mean less favourable mortgage deals if the loan-to-value (LTV) ratio changes, requiring a reassessment of financial options.

Recent Trends in Down Valuations

While there are no definitive statistics covering every down valuation, recent data provides insight into the trend. In 2024, the North East recorded the highest proportion of down valuations, affecting nearly 4.8% of transactions, with an average reduction of £7,498. The West Midlands, South West, Scotland, and North West all experienced similar trends, with down valuations averaging over £8,000.

Several factors contribute to this continued trend. Market volatility plays a significant role, with house prices fluctuating based on supply and demand. Rising interest rates and the increased cost of borrowing have led to affordability concerns, prompting valuers to take a more cautious approach. Additionally, economic uncertainty and lenders reassessing affordability criteria due to the ongoing cost of living pressures mean valuers are naturally more conservative in their assessments.

Down Valuations for a Purchase

When purchasing a property, a down valuation can be an unwelcome surprise. However, in some cases, it may highlight concerns about the property that had not been considered during the initial negotiations. If a surveyor identifies structural issues or market-related overpricing, the valuation serves as a warning to buyers to reassess whether they are making a sound investment.

Estate agents typically set asking prices with the seller’s interests in mind, often aiming for the highest price possible. Surveyors, however, provide an independent valuation based on factors such as location, condition, size, and comparable property sales. If the price has been inflated due to high demand, the lender’s valuation may reflect a more realistic market value.

Down Valuations for a Remortgage

For homeowners looking to remortgage, a down valuation can impact the options available to them. If staying with the existing lender, many product transfers use index-linked valuations, meaning no additional survey is required. However, for those switching to a new lender, an independent valuation is often necessary. If the valuation is lower than expected, it may result in the homeowner being offered a mortgage product at a higher LTV, potentially increasing the interest rate and monthly repayments.

While there is an option to appeal a valuation by providing evidence of comparable sales in the area, lenders rely on the surveyor’s professional judgment. An appeal may be successful if there is substantial proof that similar properties have recently sold at a higher price. However, attempting to remortgage with a different lender is unlikely to produce a significantly different result, as most lenders use the same valuation criteria.

The Current Market Outlook

The UK property market continues to experience shifts, influenced by economic conditions, interest rate fluctuations, and affordability concerns. House prices in 2024 ended on a positive note, with an overall 4.7% increase compared to the previous year. However, regional disparities remain, with London experiencing a 4.8% decrease in average house prices over the same period. Buyers and sellers must remain aware of these trends and how they impact valuations.

Surveyors are expected to remain cautious in their assessments, particularly with the Bank of England keeping interest rates under review. While some areas may experience modest price growth, others may continue to see corrections from previous market highs.

Conclusion

Down valuations are an inherent part of the property market and should not always be viewed negatively. Rather than seeing them as an obstacle, they should be considered a reflection of a property’s true market value. Whether purchasing, selling, or remortgaging, understanding how valuations work and the factors influencing them can help individuals navigate the process more effectively.

If you have concerns about a down valuation or need expert guidance on your mortgage options, speak to one of our advisers today by calling 0808 303 5528 or enquiring online.