What to offer after a down valuation?

Alexfwalker81

We had an offer accepted on our purchase at £455k. Not a steal, but on the money, we thought.

However, the valuer on behalf of our lender doesn’t agree and has valued at £425k.

We’re tempted to share the pain and meet in the middle at £440k. However, we’re worried that this is going to cause problems in the future, such as potential negative equity, or insuring it for what we paid for it. So, I’m not asking about the ethics of reducing our offer to the level of the valuation, I’m asking whether we’ll be causing ourselves problems by doing what we feel is the ‘right thing’ and meeting the vendor halfway.

Claire2989

We’ve just had the same thing happen to use. Offer accepted at £450k as we thought that’s what it’s worth. Values came along and said £420k. I think it’s the pandemic situation that’s causing the down valuation uncertainty. 

We split the difference and are paying £430k. For us we were happy to do that but we have a sizeable (27%) deposit and are planning on staying in the house for 10+ years. So I guess it depends on your attitude to risk and any potential downturn and how it may affect your plans to move on from the property. Our vendors initially said they weren’t willing to negotiate and wouldn’t sell if we didn’t pay £450k but they came around.

its worked out for us because we stumped up a bit more deposit and now we’re borrowing a bit less at a good LtV so our monthly payment and interest has reduced. 

It hasn’t made a difference to our building insurance, as that’s calculated at cost to rebuild the property not the actual market value of it. 

I guess it depends on if the property is worth it to you.

MovingForwards

Start negotiating by saying the property has been valued at £425 and you are reducing your offer.

Negative equity only comes into play if you want to sell.

Properties are insured on the rebuild cost, rooms, build type etc, not value of the property.

numbercruncher8

Need to consider the other information not provided.
Obviously the further you go beyond the valuation, the greater the risk - whether this risk is meaningful depends on your other circumstances.

For example, if you have a combination of high LTV, short fixed term, and relatively low level of savings you could have a situation in future where you cannot remortgage without paying more money into the mortgage or get stuck on the fixed rate.

What would be the implications of a valuation of -10% when the fixed term ends, and could you afford to pay to be able to remortgage at the current LTV. If not, what would your mortgage payments be on the standard rate, and could you afford them?

-10% is of course unlikely if you have a very long fix. If you don't, its something to bear in mind. Some forecasts say -5% this year and -11% the next, but different properties and different parts of the country rise and fall at different rates, so this is only an average. 

AdrianC

Alexfwalker81 said:

We had an offer accepted on our purchase at £455k. Not a steal, but on the money, we thought.

However, the valuer on behalf of our lender doesn’t agree and has valued at £425k.

We’re tempted to share the pain and meet in the middle at £440k. However, we’re worried that this is going to cause problems in the future, such as potential negative equity, or insuring it for what we paid for it. So, I’m not asking about the ethics of reducing our offer to the level of the valuation, I’m asking whether we’ll be causing ourselves problems by doing what we feel is the ‘right thing’ and meeting the vendor halfway.

How big a mortgage are you getting?

If it's <£360k, then the downvaluation won't affect the lending.

It's all about what you and the vendor agree.