Mortgage lenders 'undervaluing homes'

Wednesday, 12 August 2009 07:00

Mortgage lenders are deliberately undervaluing properties, causing sales and remortgages to fall through, estate agents have claimed.

The National Association of Estate Agents (NAEA) said lenders could be undervaluing properties by as much as ten per cent.

According to the group, 65 per cent of estate agents who took part in a poll said property sales had fallen through as a result of down valuations.

Peter Bolton King, chief executive of the NAEA, said: "Our members have heard in several cases that lenders gave specific instructions to their valuers as to how they should approach these valuations.

"We all know that valuation is not an exact science and you can understand under current market conditions people erring on the side of caution. But is it fair that they value a property based on what might happen in the future rather than what is happening today?"

Mr Bolton-King said "it is neither fair nor ethical" for valuations to be lowered to reduce exposure to competitive loan rates.

But the Council of Mortgage Lenders (CML) said lenders only use independent, trained valuers who have a duty to ensure their valuations are as accurate as possible.

"In an environment of falling house prices, low transactions and economic uncertainty, undertaking valuations is particularly difficult, as there may be few similar properties transacting against which to obtain a valuation benchmark, and greater uncertainty about the marketability and value of a particular property," a spokesperson for the CML said.

Amir Ghani, policy adviser for the Building Societies Association (BSA) added: "We are not aware of any building societies instructing valuers to undervalue properties."

There could be other reasons for lower valuations, such as uncertainty in the market, Mr Ghani said.

"Anecdotally, there are some lenders who may have given specific instructions to valuers to be more cautious," said Ray Boulger, senior technical manager at mortgage advisers John Charcol.

However, Mr Boulger said he had not seen any issues with sales falling through because of valuations on a large scale.

In some cases, down valuations can be an opportunity for the buyer to go back and renegotiate a lower price, he added.

Katie Tucker, technical manager at Mortgage Force, said: "It's plausible that that the recent positive house price figures are causing vendors to ask higher, and this month's recent increase in high LTV mortgages and first time buyers, has made that price attainable to more borrowers so the asking prices are being met, only to be thwarted by lenders who are still being over cautious.

"Valuers have to show 'comparables': three examples of recent sales of an equivalent property, at that price, to back up the price of each property. That means this undervaluing is only temporary, and will only last for three months or so until some higher priced sales have gone through."

If you believe the bank's valuation is unrealistic, you can ask the vendor to justify the price and take the results to the bank, which could revise its valuation, Mr Boulger added.

Sales are not the only time when a lower than expected valuation can cause a problem, however.

Borrowers who are moving onto a different product may find they are unable to access the most competitive rates because the bank does not believe there is enough equity in their home.

In these circumstances, lenders often use an index valuation - they take the last valuation and multiply this by the house price inflation rate for the area - and this is not always as accurate as carrying out a valuation.

Mr Boulger said one client had his home valued at £1.1 million, which was not high enough to qualify for the mortgage he wanted.

But after paying for his own valuation, the property was re-valued at £1.9 million - a significant difference.

If you are concerned a lender could scupper your sale, a broker should be able to point you in the direction of a less cautious bank or building society, Mr Boulger added.

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