You’ve found a house you love, had your offer accepted and started the conveyancing process. Then your mortgage lender values the property at less than the amount you’ve agreed to pay.
This is known as a mortgage down valuation, and it can create problems for both buyers and sellers.
If a house is down valued, the sale does not automatically fall through. However, the buyer may need to find additional funds, renegotiate the purchase price or reconsider their mortgage arrangements.
At AFG Law, our Residential Property solicitors help buyers and sellers throughout Bolton, Bury and the surrounding areas navigate property transactions, including situations where unexpected issues arise.
What does it mean when a house is down valued?
A down valuation happens when a mortgage lender decides that a property is worth less than the price the buyer has agreed to pay. For example, you might agree to buy a house for £250,000, but the lender’s valuation comes back at £235,000.
The lender will generally calculate how much it is prepared to lend using its own valuation rather than the agreed sale price. This matters because the amount you can borrow depends partly on the property’s value and your loan-to-value ratio.
A down valuation does not necessarily mean the seller is asking an unreasonable price. Property valuations involve professional judgement, and different buyers, surveyors and lenders may reach different conclusions.
Why do mortgage lenders down value properties?
When assessing a mortgage application, a bank or building society usually arranges a valuation to establish whether the property provides suitable security for the proposed loan. The mortgage surveyor may consider several factors, including the property’s condition, location, type and recent sales of similar homes.
Valuations are often based on comparable properties that have sold in the surrounding area.
A lender may value a property below the agreed price because:
- Similar properties have achieved lower sold prices.
- The asking price is higher than recent sales in the local area.
- The property needs substantial repairs or improvements.
- There are concerns about its construction or condition.
- Local property market conditions have changed.
- There is limited evidence of comparable sales.
Estate agents may have detailed knowledge of the local market, but their asking price recommendations and a lender’s mortgage valuation serve different purposes. An estate agent is trying to establish a realistic selling price, while a lender is assessing the property as security for a mortgage.
What happens if a house is down valued?
The immediate consequence is that the lender may offer a smaller mortgage than the buyer expected.
For example, you might agree to purchase a house for £250,000 with a £25,000 deposit and a mortgage of £225,000. However, if the lender values the property at £235,000 rather than the agreed purchase price, it may only be willing to lend £211,500, based on a 90% loan-to-value mortgage.
This would leave you needing to find an additional £13,500 to proceed with the purchase at the original price. If you cannot afford the difference, you may need to negotiate a lower purchase price with the seller, explore alternative mortgage arrangements or reconsider whether to proceed.
This can be a significant problem, particularly for first-time buyers who have saved a deposit based on the amount they expected to borrow. However, there may be several ways to keep the purchase moving.
Can you renegotiate the house price after a down valuation?
Yes. If you have not exchanged contracts, you can ask the seller to reduce the price. For example, if the agreed purchase price was £250,000 but the mortgage valuation is £235,000, you could ask the seller to accept the lower amount or negotiate a figure somewhere between the two.
However, the seller is not obliged to agree. They may believe their asking price is justified, particularly if they have received interest from other buyers. But, they should also consider whether another buyer relying on a mortgage might face the same problem.
Where the parties agree a revised price, the estate agent and solicitors should be informed, and the lender may need to issue updated mortgage documentation.
Can you challenge a mortgage down valuation?
Some lenders allow borrowers to request a valuation reconsideration, although the process and evidence requirements vary. You may need to provide comparable market evidence, such as recent completed sales of similar properties.
Simply showing that nearby houses are advertised at higher prices is unlikely to be as persuasive as evidence of actual transactions. An estate agent may be able to help identify comparable properties and explain why they believe the agreed price is reasonable. However, the lender is not required to change its valuation, and a challenge may be unsuccessful.
Can you increase your deposit instead?
If you have sufficient savings, you may be able to cover the difference between the mortgage offered and the agreed purchase price. However, you should consider whether doing so would leave you with enough money for legal fees, Stamp Duty Land Tax where applicable, moving costs and unexpected expenses.
You should also think carefully about paying substantially more than the lender believes the property is worth. A down valuation is not definitive proof that a house is overpriced, but it is a reason to review your finances and the proposed purchase.
Could another mortgage lender offer a higher valuation?
Possibly. Different lenders may use different surveyors or valuation methods, and another lender might reach a different conclusion. However, there is no guarantee that changing lenders will solve the problem. You may incur additional valuation costs, and a new mortgage application could delay the transaction.
A mortgage broker can advise whether another lender is likely to be suitable, considering your financial circumstances and the available mortgage products. You should not assume that a new lender will automatically approve a higher loan.
What if you’re selling a house that has been down valued?
A down valuation can be frustrating for sellers, especially if you have already found another property to buy. You may feel that the buyer’s lender has underestimated your home’s value. However, refusing to negotiate could mean losing the buyer and having to market the property again.
Although cash buyers do not need a mortgage valuation, they may still arrange their own survey or valuation and negotiate accordingly. Before deciding what to do, consider how long the property has been marketed, whether there were competing offers and what similar homes have recently sold for.
Your estate agent may be able to advise on current demand and whether the agreed price is achievable.
Can a house sale fall through because of a down valuation?
Yes. If the buyer cannot obtain sufficient mortgage funding and neither party is willing or able to compromise, the transaction may fall through.
In England and Wales, buyers and sellers are generally free to withdraw before exchange of contracts, subject to any separate binding arrangements. Once contracts have been exchanged, however, the position is different.
A buyer who fails to complete because their mortgage funding is unavailable may face serious contractual consequences, including potential loss of their deposit and liability for additional losses. This is one reason why mortgage arrangements should be confirmed before exchange.
Our guide to what conveyancing solicitors do explains the legal work involved before a property transaction becomes binding.
How can a conveyancing solicitor help?
Your conveyancing solicitor cannot force a mortgage lender to increase its valuation or require the seller to reduce the price. However, they can help manage the legal consequences of a down valuation and keep the transaction progressing where possible.
This may include communicating an agreed price reduction, dealing with revised mortgage instructions and ensuring the contract reflects the final arrangements. At AFG Law, we understand that delays and unexpected changes can make buying or selling a home stressful.
Our Residential Property team works with buyers, sellers, estate agents and mortgage lenders to progress transactions and explain the legal steps involved.
If your purchase is taking longer than expected, you may also find our article on changing solicitors during conveyancing useful.
Why Choose AFG Law?
Whether you’re buying your first home, moving house or selling a property, AFG Law can help you understand the conveyancing process and the legal implications of any problems that arise.
Our Residential Property team assists clients throughout England and Wales.
For conveyancing advice, call AFG Law on 01204 377600, email residentialproperty@afglaw.co.uk or complete our online enquiry form.