Why are properties being down valued and is there anything you can do about it?

why are properties being down valued

No homeowner wants to deal with down valuations. While down valuations create issues for both buyers and sellers, they can be particularly nerve wracking for those looking to move home.

To add to the stress, there may not be much homeowners can do to mitigate the damage. When down valuations occur, it’s usually due to wider difficulties in the economy. House prices tend to be swayed by rising rates, inflation, and general sentiment. All things you’ll likely have no control over.

Down valuations have emerged as a key issue in the current market and as such, this blog will address why are properties being down valued so prevalently right now. We’ll explore just how much value can be knocked off from a property, and how specialist finance could allow investors to make the best of a bad situation.

What exactly is a down valuation?

A down valuation occurs when a survey has been completed, and the property in question is deemed to be worth less than the offer price. For example, you may agree to buy a home for £300,000. But the surveyor involved believes the property is actually worth £285,000.

This could stop the investment in its tracks. Lenders may not be willing to lend at all in the face of down valuations.

Source: The Times

Why are properties being down valued?

In recent years, down valuations have been driven primarily by an unstable economy, and cautious lenders. The pandemic had a big impact on how surveyors viewed the property market.

Nearly half of property purchases conducted in the UK between January 2020 and January 2022 may have been subject to a down valuation, according to HBB Solutions.

But even as we put the worst of Covid-19 behind us, caution remained. Raised rates, the cost-of-living crisis, and the mini-budget pumped the breaks on activity in the property market.

Source: The Times

sale under valued property

How much is this costing sellers?

Those in the property market not only need to worry about why are properties being down valued, but also how much is this costing them. Specific amounts will vary, but generally homeowners are seeing reductions worth several thousand pounds.

Additional analysis from HBB Solutions found that sales subject to a down valuation are being hit by an average of a 2.8% cut. Halifax’s latest house price index placed the average UK property price at £286,896. So, a 2.8% reduction on the average property price at the moment would shave off just over £8,000.

Last year, around 100,000 homes were down valued, according to Benham and Reeves. Just over 830,000 homes were sold in 2022, meaning, approximately 1 in 8 ended up down valued. And while the average loss may sit around the £8,000 mark, some agents have reportedly seen homes have as much as £100,000 wiped off their value.

Source: HomeOwners Alliance, The Guardian, This is Money

If properties are being down valued, how will this affect the relationship between buyers and sellers?

Sellers will obviously be disheartened if their properties are being down valued, but it also creates headaches for buyers and property investors. Lenders may refuse to offer mortgages where it happens, meaning buyers may be left scrambling to fill the gap or risk missing out entirely.

Generally, buyers are left with 3 options when down valuations occur. They can raise the additional funds to cover the difference, ask the seller to lower their price, or pull out of the deal. But, down valuations may also create opportunities for savvy investors.

In recent years, the property world was arguably very much a sellers’ market. Prices kept on rising, providing homeowners with the upper hand. So long as the arrows kept on going up, sellers could hold out for better offers.

But, in the opening months of 2023, we’ve seen house price growth slow. In some areas of the UK, house prices have actually gone into reverse. This may make sellers nervous, especially with down valuations on the rise. They may be keen to try to sell their homes as quickly as possible before prices have a chance to drop further.

We may now be in more of a buyers’ market, where property can be picked up at a discount. Indeed,  Zoopla recently found there are 65% more homes for sale now than there were last year. Meanwhile, buyers are agreeing 11% more sales than they were in 2019.

So, how could property investors take advantage as those keen to sell bring their properties to market?

Source: The Telegraph, Mortgage Solutions, Zoopla


How specialist finance can help with the question of why are properties being down valued, and how to respond

As homeowners look to exit, and buyers continue to try and find bargains, we could see heightened competition from investors. As buyers try to lock in short-term bargains, they’ll need a financial solution that can keep pace with the current market.

Property discounts may not stick around for long. If the economy eases over the coming months, sellers may once again attain the upper hand. Fortunately, our bridging loans can be issued in as little as 3 days, allowing you to jump on any opportunities you come across.

Also, in the BTL market, we’ve seen landlords turn to auction houses when needing to sell their assets quickly in recent months. We can also help investors take advantage of this, with a range of BTL mortgages and auction loans available.

What’s more, across all our bespoke products, we embrace flexibility. Our loans and underwriting processes can adapt to fluctuations in the wider market quickly. Whether that includes new legislation, shifting sentiment, or changes in property demand.

Source: Landlord Today


MFS are a bridging loan and buy-to-let mortgage provider, not financial advisors. Therefore, Investors are encouraged to seek professional advice.

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