How to deal with the problem of low mortgage valuations
After the recent slump in property prices, headline figures suggest that house values are once again on the up. The latest figures from Nationwide reported that house prices rose by 1% in April, and have increased by over 10% in the past 12 months, while the Halifax has stated that prices are 7% higher than last year.
Plus, the Royal Institution of Chartered Surveyors has predicted that the housing market will experience a post-election boost with housing prices increasing over the summer.
Sounds good on the surface, right?
Well you’d certainly think so! However, in my experience, lenders seem reluctant to pass on the good cheer. Low mortgage valuations are still proving to be a big problem for many people.
So why are low valuations such a problem?
When assessing for finance, some mortgage lenders have been valuing properties by up to 20% below market value. So say you’ve found a great BTL opportunity on the market for £200,000. The lender then values it at 160K. This leaves you having to find a bigger deposit, negotiating a lower price… or simply missing out on the opportunity all together. And, it’s not just BTL investors who are being hit. The problem also affects private home-buyers and especially those trying to remortgage…
So what can you do about a low valuation?
Firstly, make sure that the lender carries out a physical inspection of your property, rather than simply relying on a “desktop” appraisal. If they still come back to you with a low valuation, you can try appealing against the decision and show your lender evidence of a few similar properties in the area that have sold at the right price. However, this isn’t always easy… in a market where few properties are changing hands, you may struggle to gather enough evidence.
That doesn’t mean you have to miss out though…
If you’ve sourced a great BTL opportunity that’s been down-valued in this way, and you can’t persuade the valuer to change his opinion then it really comes down to one thing:
Do you think it’s a good deal or not?
At the end of the day, if your due diligence has shown that the property is good at the price, with great potential, then you may have to be brave and trust your judgement. That’s assuming you have the capital to invest to cover the extra deposit shortfall.
These are far from normal times and 12 months from now, with more confidence in the market, the same deal could be seen in a much different light.
Bear in mind that these low valuations are being given by some over cautious lenders to provide them with an extra buffer of protection on the deal. So, I prefer to judge each property on its own merits and ask myself whether it’s a good deal or not. If it is, I’m likely to be happy with it, regardless of what a surveyor may think at that point in time. Let’s face it, BTL is a long-term investment strategy so I’m more interested in the value of the property in a decade or so’s time, not what it’s worth at the bottom of the property crash.
So, if after carrying out your due diligence you decide to press ahead, you can take the mortgage offered by the lender and make up the shortfall yourself or through mezzanine finance.
What other options are available?
Obviously, there are lots of lenders out there – even in the current market – so it can pay to shop around to see if you can get a better valuation – and finance deal – elsewhere.
A lot of investors rely on a development finance broker who knows which lenders are less likely to undervalue. They should have access to a wide network of specialist finance lenders and financiers and be able to trawl through all the relevant products to find you the very best deal.
A good broker will not only save you time and effort but – perhaps even more importantly – they’ll also be able to provide you with good value for money, getting you a deal that will pay for their services many times over.
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So remember, just because some lenders are providing low valuations, doesn’t mean you have to put up with it or miss out on profitable BTL opportunities – you still have plenty of options!
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This is a really good article. This is still a common problem where people are still struggling to gain a mortgage in order to buy a home. You have underlined many of the reason why people are finding it difficult to get a mortgage that is right for them.
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