Mortgage brokers have warned that an increase in downvaluations is starting to hit the property market.
Lenders and their valuers are cutting offers on around one in 30 homes by around £30,000, according to the reports.
It is being blamed on a lack of current data for property valuations and the time it is taking for sales to complete and be recorded at the Land Registry.
Chris Sykes, a director at mortgage broker Private Finance, told The Times: “We have seen a fair number of down-valuations recently, £30,000 or £40,000 here and there, although there have been a couple of larger ones.
“Probably about one in 30 loans are affected.
“The market is so busy and a lot of people are paying over the asking price, plus the sold price takes so long to make its way on to Land Registry records.
“It can sometimes be nine months since an offer was agreed, so the valuers don’t have the data to go on. They tend to want to use sold data rather than what the estate agent selling the property says. It is also based on their opinions of the market.”
It comes as analysis from property buying company HBB Solutions last week suggested that almost half of pandemic property purchases across the UK last year would now have likely been downvalued.
The company used official data on the frequency of mortgage downvaluations during 2020 and applied it to the manic property market last year.
It found that Welsh home sellers are most likely to see their property downvalued, with industry figures showing that 63% of all property transactions will hit this pricing snag during their survey stage.
The south east of England sits top of the table with HBB estimating that 129,394 of the 294,077 homes to have sold since the start of 2020 will have seen a down valuation.
The north west is thought to have seen the second largest volume of downvalued property transactions at 118,694, with London the only other region to breach the 100,000 threshold at 107,168.
Northern Ireland is estimated to have seen the lowest number of pandemic property down valuations, however, HBB Solutions still estimates almost 27,000 transactions will have been subject to a price reduction by valuers
Chris Hodgkinson, managing director of HBB Solutions, said: “Downvaluations can be an extremely frustrating part of buying or selling a property, especially when both buyer and seller have agreed on a price they are both happy with, only for the sale to be scuppered by a third party opinion.
Of course, in many cases these reductions are justified but in a market running as hot as we’ve seen during the pandemic, it’s not unheard of for lenders to influence this decision due to their own fears around escalating market values.
“Unfortunately, there’s not a great deal that can be done to immediately remedy the issue other than the buyer coughing up or the seller reducing the asking price.
“It’s hardly surprising that many sales, and the wider chains they sit within, can be jeopardised due to a down valuation.”
The Bank Of Mum And Dad Continues To Support Buyers
In March, borrowers continued to rely on their loved ones to boost their borrowing power, according to new research from Legal & General Mortgage Club’s SmartrCriteria tool. Searches for homeowners looking for joint borrower sole proprietor (JBSP) mortgages climbed by 17% in March, suggesting that borrowers are relying on financial support. Activity in the buy-to-let market reinforced this trend, as searches for gifted equity on behalf of landlords jumped by 38%.
Legal & General Mortgage Club’s SmartrCriteria tool tracks product searches from over 8,000 advisers, shedding light on the purchase and remortgage trends witnessed by brokers across the industry.
Legal & General Mortgage Club’s data also shows that demand from buyers continued despite rising living costs and soaring house prices, especially in the holiday let sector. Searches for holiday lets grew by 24% in March, implying that the sector is primed for continued growth following the boom in staycations that was sparked by the pandemic. The buy-to-let market also exhibited strong demand as first-time landlords drove activity, with searches rising by 23%.
Mortgage searches on behalf of borrowers with complex finances continued to grow between February and March. The SmartrCriteria data found that searches by advisers for lenders willing to accept borrowers with an unsatisfied default rose by 46% over the last month. Searches for lenders that ignore communications defaults, such as missed telephone bills, also grew by 65% in March.
In a similar vein, searches on behalf of those with unsecured arrears and missed mortgage payments increased by 18% and 26% respectively. This data comes as households across the UK experience a surge in the cost of living, with soaring energy bills making it harder for consumers to meet their monthly outgoings.