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Undervalued mortgage survey

What happens if a lender under-values the property during the mortgage process?

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 25th June 2019 *

What happens when a property is undervalued following a mortgage valuation?

We receive lots of enquiries from people who have received mortgage valuation survey results which have undervalued a house they’re looking to purchase.

If this has happened to yourself, you may now be looking for the options you have available. Hopefully the information below will provide the answers you need...

In this article we will cover:

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What happens with my mortgage if a surveyor has undervalued the property?

A mortgage valuation is one of the most vital stages in the application process. If the house you’re buying is undervalued by the mortgage company it can, potentially, derail the whole sale.

It’s worth bearing in mind that the mortgage lender, as well as safeguarding itself, is also looking to protect the buyer by providing them with an accurate valuation of the house they wish to purchase, rather than an estate agent’s estimate.

Why would a mortgage lender have undervalued the property I want to buy?

It’s very easy to believe something is worth what somebody is prepared to pay. Unfortunately, mortgage lenders don’t have the luxury of sharing that view. They must place a priority on protecting their debt and consider how difficult it may be to reclaim that debt if a house has been overvalued.

A mortgage lender’s valuation will be based on two factors:

  • Recently completed sales of similar properties in the immediate area
  • Current condition of the house you’re looking to buy

‘Recently completed’ is generally defined as in the last six months for a house in the local area of similar size and condition. Damp and subsidence are fairly common conditions that can affect a mortgage valuation.

If the agreed price is above that of similar houses sold recently or if the condition is below what should be expected, a surveyor may need to revise the value accordingly.

What are my mortgage options if the property is undervalued?

If a lender’s mortgage valuation has undervalued a house you want to buy there are, generally, the following options available to you:

Renegotiate with the seller

Being armed with an official valuation from a bank or building society can embolden many buyers to approach the seller and attempt to renegotiate the original asking price.

If a seller is already in a chain and looking to move into their new house or if the house has been on the market for a while they may be open to these negotiations. However, a seller is not obliged to reduce their asking price and may walk away from the sale if the original amount is not paid.

Appeal against the valuation

Appeals are rarely successful, however some lenders will consider this if a buyer is able to produce clear evidence of comparable sale prices for similar properties in the area over the last six months.

A more comprehensive valuation could also be requested if a buyer is prepared to bear the cost and is convinced it will make a difference.

Use a different lender

A buyer could apply again with a different mortgage lender in the hope they’re appointed surveyors will view the property in a different light. However, this may affect other stages of the application if numerous credit checks have been completed in a short period of time.

But if you go through a whole-of-market broker, like the ones we work with, you can keep formal enquiries to a minimum and stand the best chance of finding a lender whose valuation lines up with what you were expecting.

Lenders will normally use a panel of surveyors for their work. Using a different mortgage provider who uses a different panel of surveyors can give a different result if the new surveyor is more experienced in that locality.

Make an enquiry with us

If you’d like to know more about the options available to you if a mortgage company has undervalued a property you are looking to buy, get in touch and we will arrange for an expert to contact you.

The advisors we work with have access to every lender on the market, so if the one you’re dealing with has undervalued your property, they can introduce you to another who is better equipped to cater for a customer with your needs and circumstances.

Will a mortgage company still lend me the same amount if they’ve undervalued the property I want to buy?

If a mortgage company has undervalued a property the new valuation will then form the basis of the mortgage offer they will make to a buyer; therefore, it’s likely the loan amount originally applied for will change.

Mortgage lenders base the amount a buyer can borrow on a percentage of the value of the house they want to purchase. A reduced valuation can alter the entire package - both amount to borrow and deposit required, making it harder to agree terms.

For example, a property sale is agreed for £250,000. The buyer has a deposit of £50,000 (20%) and applies to a mortgage lender for the remaining balance of £200,000.

The mortgage valuation results in the property being undervalued by £20,000 to £230,000. If the lender will only advance 80% of the new value this leaves a shortfall of £16,000.

If the seller accepts the new valuation and reduces their asking price then the sale can go ahead on the reduced amounts.

If the seller won’t re-negotiate the price, the buyer could apply for the additional amount. The lender may agree to this if the application is strong and it fits within their lending parameters, however, it’s possible the interest rate will be higher to counter the risk of a higher loan to value (LTV).

What can I do with a remortgage application if my house is undervalued?

The options for a remortgage are broadly similar to what has been outlined above with the main difference being there is no seller to negotiate with. In these circumstances you would need to discuss this with the lender yourself.

You could appeal the remortgage valuation that has undervalued your property by giving your lender evidence of recent sales matching your valuation. Alternatively you could consider remortgaging with a different lender whose surveyors may view the value of your property differently.

Whether looking for a mortgage or remortgage, the undervaluing of a property can be a stressful situation. It may be advisable to consider using a mortgage broker who has experience of the market and a deep understanding of the mortgage valuation process.

If you make an enquiry we can arrange for a mortgage broker we work with to get in touch and discuss further with you.

Why you should speak to a mortgage broker

At Online Mortgage Advisor we can offer you a first-class service tailored to your own specific needs with access to the most experienced brokers available that:

  • Have whole of market access
  • Have excellent relationships with lenders
  • Are OMA accredited advisors
  • Have completed a 12 module LIBF accredited training course
  • Can offer bespoke advice about undervalued properties

Speak to a mortgage valuation expert

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 25th June 2019
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.