If the mortgage valuer ‘downvalues’ your property it could blow the whole deal out of the water.
Banks and Building Societies normally appoint chartered surveyors to carry out valuations for mortgage lending purposes.
This is a crucial stage because until the mortgage valuation has been done the lender can’t issue your buyer with a mortgage offer. And without that, they can’t exchange contracts. But getting the valuation done isn’t always plain sailing because it’s not unknown for surveyors to value properties at less than the agreed purchase price.
Why does this matter? For one thing it suggests that the buyer is paying too much. And reopening negotiations at this stage is never going to be easy. But the real worry is the possible effect on the mortgage loan.
Banks look at mortgages as a proportion to the value of the property – a loan-to-value ratio (LTV) – and if the ‘true value’ turns out to be lower than the agreed price, they will lend against the lower figure, not the purchase price. If a mortgage is relatively high in relation to the value of the property, then a ‘downvaluation’ could push your buyer into a higher, more expensive loan-to-value band (say, above 75 per cent).
Or it could totally scupper their funding. If this does muck up their finances, it may be possible for them to take evasive action and challenge the valuation.
When it comes to valuing newbuild dwellings which generally command a premium price, problems can arise because developers have a fondness for inflating headline sales prices by including tempting incentives – typically free legal fees, stamp duty paid or part exchange sweeteners. Developers are now required to disclose incentives to valuers on CML form (Council of Mortgage Lenders).
But when generous interest-free loans (shared equity) are added to the mix it can make assessing the property’s true value (if later sold second hand without such goodies) a daunting task, particularly since banks won’t hesitate to subsequently sue valuation surveyors for alleged ‘overvaluing’, hence the greater likelihood of ‘downvaluation’ on new homes.
So it pays to be nice to the mortgage valuer!
Our next blog – coming soon …….
‘Proper’ surveys – what’s the right one for you?
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