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What is a down valuation?

23 April 2024
Danny Luke
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Down valuation – A valuation given to a property that is less than the agreed sale price.

In this guide

  1. What is a down valuation?
  2. Down valuations 2024 – How common is it?
  3. Why are properties being down valued?
  4. Down valuation advice for buyers – what to do if your mortgage company down values the house you’re buying
  5. Tips for negotiating after down valuation
  6. Down valuation – what to do if your buyer’s mortgage gets refused
  7. Property been down valued when trying to remortgage
  8. How to avoid down valuation

What is a down valuation?

Before you get a mortgage approved, your lender will need to to value the property you want to buy. They will do this for two reasons. Firstly, they will want to ensure the property is worth the amount you say it is. Secondly, they will need to know the property value to work out your Loan to Value (LTV) ratio. The Loan to Value ratio will determine the interest rate they offer you.

Your mortgage lender will want to ensure your property is valued accurately. This will protect them from financial loss if you are unable to keep up with your mortgage payments. If they are forced to repossess the property, they want to ensure they don’t have to sell at a loss.

How are properties valued?

There are two ways for a mortgage lender to value your property. They will either do an in-person inspection or a desktop valuation. An in-person inspection will be carried out by a qualified surveyor. A desktop valuation is likely to use an Automated Valuation Model.

Which option your mortgage lender chooses will likely be dictated by how confident they are in the data available. How many comparable recent sales there have been? How unusual is your property? Does the lender have any concerns about the agreed sale price? It will also depend on whether you want to upgrade to a property survey. If you choose a full survey, a valuation for the mortgage company will likely be done at the same time.

If you are buying a property with cash, it is still wise to get a property survey and valuation. Although you won’t be required to get one done, it will ensure your purchase is a wise one.

Down valuation 2024 – how common is it?

According to research, there’s been an increase in surveyors down valuing property in recent years.

With continued uncertainty about inflation and interest rates, the property industry is cautious. Rightmove, Zoopla and Halifax all predict further price drops before the end of 2024.

Until the economy stabilises, we can expect to see surveyor and lender caution around property value. Bankrate UK suggests that as much as 46% of UK properties are being down valued by lenders. This illustrates the level of caution currently being felt by lenders.

Why are properties being down valued?

High inflation and interest rates mean many mortgage lenders are cautious about homeowner affordability. There are predictions that wider economic and political uncertainty will result in further corrections. Mortgage lenders are keen to protect themselves from financial loss if we see a rise in repossessions.

Down valuation advice for buyers – what to do if your mortgage company down values the house you’re buying

Example of down valuation

Agreed sale price £300,000
Cash you have available for deposit£45,000 (15%)
Mortgage applied for£255,000 at 85% LTV
Down valuation£270,000
Mortgage available with same product(85% LTV) £229,500
Deposit required to buy at agreed selling price£70,500
Shortfall £25,500

Despite it being more common than ever, it can be difficult to find down valuation advice for home buyers. If you’re in the process of buying a property and have been told your mortgage company has down valued it, your first step should be to approach the seller. If your lender has down valued the property, it’s likely that any other potential buyers would have the same problem. This means it’s in their interest to renegotiate a lower sale price to reflect the down valuation.

What are your options?

If your seller is unwilling to renegotiate the sale price by an acceptable amount, you have a few other options:

  • Look at your finances and see whether you can still afford the property with lower borrowing ability. Using the example above, do you have access to additional funds that could make up the shortfall?
  • Discuss your options with your mortgage lender, is there an option to change product? Using the example above, would they offer you a 90% LTV product based on the new £270,000 down valuation? This would mean, with your £45,000 deposit, your shortfall would be reduced to £12,000 rather than £25,500. Alternatively, a 95% mortgage that would eliminate any shortfall. You will need to consider, however, that the higher your LTV rate, the higher your interest (and therefore your repayments).
  • Approach a different lender – it is possible that a different lender would have different thoughts on the value of the property, so it may be worth exploring. A mortgage broker is a good place to start looking into your down valuation mortgage options. They are likely to have an idea about which lenders may offer the greatest flexibility. Your seller will need to understand, however, that exploring alternative mortgage options will delay to the sale. If the sale is held up too much, you and the seller risk the whole property chain falling through.

Tips for negotiating after down valuation

If you’re experienced mortgage down valuation and want to negotiate with the seller, these tips could help.

  1. Approach the negotiation with a desire to reach a mutually agreeable compromise. Both you and your seller are ultimately working to reach a successful sale. Explain the situation and say you’re still keen to move forward if a solution can be found. This is likely to get better results than demanding they drop the price to the new down valued figure.
  2. Use the estate agent to assist in the negotiations. Their job is to deliver a successful property sale. Simply explain the situation and be clear on what you need for the sale to proceed. The difficult conversations are theirs to have with the seller.
  3. Ensure the seller is aware that if your mortgage lender has down valued their property, it is likely that other lenders and surveyors are likely to do the same. If they are unable to reach a proceedable compromise with you, they are likely to come up against the challenges with any other buyers.

Down valuation – what to do if your buyer’s mortgage gets refused

If your property has been down valued by your buyer’s mortgage lender, your estate agent should be your first point of contact. As the people who set the asking price for your property, it’s important to consider why the lender has valued the property lower than the estate agent valuation.

If the lender has identified something within the property that down values it, eg. an issue with the property that requires fixing, you may be able to get the work done and then have the property revalued. Alternatively, if this will slow the sale down too much, you’ll need to consider dropping the agreed sale price to the new down valuation figure.

Property been down valued when trying to remortgage

It’s not just property sales where down valuation can be an issue.

If you experience down valuation when remortgaging, it’s likely to impact both the amount you can borrow and your Loan to Value ratio (LTV). A higher LTV means higher interest rates and therefore higher repayments.

If you’re hoping to borrow additional funds for a particular purpose, you have three options:

  1. Talk through your options with your current lender. You could try to challenge the valuation or explore higher Loan to Value borrowing.
  2. Explore remortgaging with a different lender. A mortgage broker will be able to help you look at the different options available to you.
  3. If you’re not able to raise enough funds through additional borrowing on your remortgage, you could explore making up any shortfall with a bank loan.

How to avoid down valuation

If you want to avoid having a down valued property, it’s important that your home is priced realistically. Estate agents have been known to overvalue properties in a bid to secure the listing, so make sure you get at least three different valuations and ask for comparable sales in the area that justify the valuation they give. You can also do your own independent research using sold price tools available on some of the major property portals such as Rightmove and Zoopla.

If you want to avoid down valuation as a buyer, it’s important not to get caught up in any bidding wars with other buyers. Bidding wars often push property prices higher than the property’s original valuation. Do your own research on what you think the property is worth before making an offer. Then ensure you don’t be pushed higher than that figure.

A down valuation can come as a big blow – whether you’re buying, selling or remortgaging. It’s important to remember that there is usually a way forward if you take time to explore all the options available to you.

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