Nearly £60k down-valuation by lender

Chappaz

Hi all,

We've had an offer accepted for £664,000 on a house that was originally put on the market for £705,000.

Fast-forward to today, and the lender has came back with a valuation of £600,000, or a £64k down-valuation. Welp.

Now here's where it gets tricky. This valuation was fully automated based on similar property sale prices in the area based on square metre sizes, but there are very few to go on.

Firstly for reference, our accepted offer comes in at £2355 per square metre. From a few years ago, we have a 148sqmtr property sold for £427k, giving a square metre value of £2887. So far so good for our offer.

Then we have another property which is currently "under offer", which is 341sqmtr with a listing price of £851k, giving a listed value of £2496 per square metre. Assuming the offer won't be a million miles away from what the vendor has asked for (the property has been taken off the market for it), again that makes our offer seem decent value.

However, a property was sold just a few months ago for £762k at 480 sqmtr, giving a square metre value of only £1589, which is a near 40% drop on the above two properties.

Now of course, the lender's auto valuation only takes into account formally completed sales, which excludes the property currently under offer. That means they've looked at the one recent sale for £1589 per square metre and are probably just using that. This crashes the automated valuation, but if the sale of the £851k property that's under offer goes through at anywhere near what they were asking for, the valuation for the house we want would rocket back up again based on calculating it via this method.

So the whole situation seems a bit ridiculous to me, and stems from bad timing on the sale of a nearby property which went for what seems to be WAY below its market value. Just for some context, another property in the area sold for £1482 per square metre back in 2005, so if the latest sold price were accurate, it means property values in the street increased by 7% in 15 years, which seems a bit off for what is a desirable area.

For further context, we can look at a property that was sold in the next street down (so about 50 metres away), which sold just a few months back (so slap-bang in the middle of Covid) for £2298 per square metre, which is much more in line.

So I'm a bit baffled here. The down-valuation is big, but it seems to have been messed up by just a single sale of an absurdly undervalued property that has gone completely against the grain. The question now is how much I should worry about it given the broader situation (the mortgage itself is okay, it's more a worry about resale value) . I'd appreciate any thoughts/advice on the matter.

davidmcn

Aren't you going to get your own survey? I would rely on the valuation from somebody who's actually visited the property rather than a desktop one.

Chappaz

davidmcn said:

Aren't you going to get your own survey? I would rely on the valuation from somebody who's actually visited the property rather than a desktop one.

I am yes, although from what the surveyor said, it sounds like he's going to calculate it based on nearby property values, so I may end up back at square one. I will await his valuation though before taking any kind of action one way or the other.

I just can't fathom how a lender is prepared to valuate a property in that way. Surely condition is a big factor alongside many other things, but automatic lender valuations don't seem to take this into account whatsoever. And even if I ignore that and pay more, will this issue rear its head again when it's time to sell and someone else tries to get a mortgage to buy it from me.

Thrugelmir

How would the lender know the square meterage of every house sold nearby? Somewhat unlikely. 

ele_91

I think you can request a physical valuation if the desktop undervalued. Have you got a broker?

Chappaz

ele_91 said:

I think you can request a physical valuation if the desktop undervalued. Have you got a broker?

I do yes. Although from what I've read from the lender's own guidance, they will only consider a re-valuation if it makes a material difference to how much will be borrowed or what the interest rate will be (in this case it doesn't). I'll have a chat with him about it though and explore the options.

I've read that lenders are intentionally down-valuing a bit to cover themselves in case of any post-Covid housing market decline (maybe they can do this more easily via a desktop valuation too). Surely though this will cause large sectors of the housing market to seize up if people need huge deposits to meet the shortfall.

Has anyone else experienced any down-valuing like this?

Thrugelmir

10% isn't as dramatic as £64k.  There'll be plenty of comparatives for more recent sales in a wider radius of the property you are looking to purchase. This will provider the lender with a good indication as to the broader direction of travel. 

Lenders are naturally going to be cautious. The wider economic fall out from Covid hasn't even begun yet.  Lenders are under constant scrutiny with regards to capital buffers. Conservative mortgage lending forms part of board level policy in this regard. Banks are happy for you to risk your money but not theirs.  

peterhjohnson

Putting a price on a house is more difficult if it's unusual for the area and/or there hasn't been much trade in similar properties. There is more scope for bargains and expensive mistakes. Consider getting another lender or discussing the issue with the vendor,

letsbetfair

If it doesn't make a material difference to your mortgage, I guess it comes down to how confident you are that you're not overpaying (or how willing you are to pay a premium). This would make me at least pause to think about whether I'm overpaying...

Chappaz

Thrugelmir said:

10% isn't as dramatic as £64k.  There'll be plenty of comparatives for more recent sales in a wider radius of the property you are looking to purchase. This will provider the lender with a good indication as to the broader direction of travel. 

Lenders are naturally going to be cautious. The wider economic fall out from Covid hasn't even begun yet.  Lenders are under constant scrutiny with regards to capital buffers. Conservative mortgage lending forms part of board level policy in this regard. Banks are happy for you to risk your money but not theirs.  

Well it gets even stranger when looking beyond the street the property is in, as two within 50 metres (which were sold in the past few months, so very up-to-date prices) show a square metre value much closer to what I've agreed to pay, and they have much smaller gardens and fewer bedrooms etc.

If this is largely down to post-Covid caution, I'm thinking it may not be such a concern in the short-term. What's key to me are what the valuations would be like in 10+ years, so any slump in the next few years I can deal with.

Basically, I'm just after a second opinion on here as I want to know whether I'm completely insane to even pay what I've agreed given the lender's valuation, or whether there's some merit in my thought process.

moneysavinghero

but if the sale of the £851k property that's under offer goes through at anywhere near what they were asking for, the valuation for the house we want would rocket back up again based on calculating it via this method.

But it's only under offer. It has not sold. The buyers have probably had the same under-valuation that you have had and are considering what they want to do.

Your post seems to be you explaining why you believe the banks valuation is wrong. But then you say you are worried about the resale value. If you believe the price you are paying is correct then why are you worrying about the resale value?

Banks don't care about whether you get your dream home or not, they just care about managing their risks.