Mortgage lenders’ ‘down valuations’ on the rise

On 8^th July, the Chancellor announced a much anticipated Stamp Duty holiday. Almost overnight, the housing market went into overdrive and prices have rocketed. In October, the average house price was 7.5% higher than in the same month in 2019 – the strongest growth since June 2016.

But buyer-confidence is increasingly at odds with caution among mortgage lenders, a consequence of continued economic uncertainty. One result is a dearth of low-deposit mortgages which has thwarted the plans of thousands of first-time buyers – and there is little optimism that the promised state-backed 95% mortgages will materialise any time soon.

Low mortgage valuations

Lenders’ low confidence is also increasingly reflected in mortgage valuations, with a rising incidence of disparity between the mortgage valuation and agreed purchase price, a scenario commonly referred to as a ‘down valuation’. If such a disparity arises, the mortgage offer is based on the lower of the two, which can leave an already stretched buyer struggling to make up the balance of the deposit. As a result, many transactions are falling through.

A survey by Bankrate UK, an online mortgage comparison site, found that since March 2020, a staggering 46% of prospective buyers have seen properties down valued. In the majority of those cases, the disparity was between £5,000 and £10,000. The survey found that down valuations were most common in Wales (63% of properties) and London (59% of properties). Cottages received the highest proportion of down valuations (66%), followed by semi-detached homes (48%).

Grim economic outlook

Sadly, it seems unlikely that lender confidence is going to improve any time soon. Despite more positive vaccine news this week, the economic outlook remains grim. Indeed, in yesterday’s Spending Review, the Chancellor said that the UK’s “economic emergency” has “only just begun”.