Rising house prices are threatening to undermine the buying process as ambitious sellers and agents are hitting a bump in the road when it comes to lenders’ valuations. Here’s how:
Let’s assume you have seen the headlines about rising house prices and have decided to take the plunge and sell up for pastures new. You have your property valued by a few local agents, decide which one to appoint and within a few days your property is on the market. In the current climate, many vendors are seeing high interest in their properties due to the imbalance of supply and demand, resulting in some ending up in a bidding war.
You then accept an offer from a prospective buyer who has a mortgage agreed in principle and everything seems to be progressing along nicely. Next, the buyer begins their mortgage application. The lender will always carry out its own independent valuation on a property. This is to check the property is something that fits within its lending criteria, and that the amount being paid represents market value.
However, the surveyor says the property is worth less than the price that has been agreed – it is down-valued. This now presents a problem for both the seller and the buyer.
Let’s say your buyer was purchasing your property for £330,000 with a mortgage covering 90 per cent of the value, the mortgage amount required would be £297,000.
If the valuation then came back at £310,000 for example, your buyer’s 90 per cent mortgage would now only cover £279,000 of the purchase price, leaving the buyer having to make up the £18,000 difference themselves if they wished to stick with the same mortgage deal.
If the buyer does not have access to any other funds, such as savings or means to loan the additional money, the only other solution is for the buyer and seller (you) to renegotiate a new price. Of course, at this point, many sellers are already banking on achieving that agreed price for their ongoing purchase.
In the present Covid climate down valuations appear to be increasingly common – the recent stamp duty cut has seen high demand from buyers, but at the same time the economic uncertainty means lenders are operating with much greater caution.A survey of 1,000 buyers whose transactions spanned the first six months of the Covid crisis, found 46 per cent have had their prospective property down valued by their chosen mortgage lender after a sale and price had been agreed with the homeowner.
While most were down valued by between £5,000 and £10,000, one in four were hit with an adjustment of up to £20,000.
So, yes, the current market is certainly in sellers’ favour, but be mindful not to be too ambitious as it can result in a sale falling through and you having to start the whole process again.
WeBuyProperty can offer you a no-obligation valuation to sell your property for cash within a matter of weeks. This could save you significant time and hassle having to go through the traditional route, which is currently taking as long as five or six months to complete due to high demand.
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