Recent stories citing a ‘down-valuation pandemic’ have not helped a subject which is always sure to evoke emotion.
Such headlines came off the back of research from property purchasing firm, HBB Solutions, which claims that almost half of property purchases across the UK may have been subject to a down-valuation during the pandemic.
It estimates that between January 2020 and January 2022, 866,906 properties – 44% – were down-valued by on average 2.8% – around £7,709.
Our own figures paint a somewhat different picture. Over the same period, our data shows just 19.2% of our properties were down-valued, by on average 1.54% – around £6,926.
Around the start of lockdown, Spring 2020, we did see a very short climb in our down-valuation figures, but since that time they have decreased and remained relatively low.
Different regions of course produce different results. For example, our data highlights Greater London as the location which has encountered the highest percentage of down-valuations over the last two-years.
Down-valuations are driven by rising prices, and you tend to see more where prices are rising the fastest and where there is a lack of data to support those initial valuations, which might explain the London data; if the comparable sales data that surveyors use doesn’t support the agreed purchase price then they will make the adjustment accordingly.
A rising house price environment is likely to have a considerable impact in terms of vendor (and agent) anticipation around value. In locations where property prices are rising, there can be a natural assumption amongst homeowners that just because their neighbour’s property has increased by £15k, so has theirs; causing them to up their price and put it on the market for more than their neighbours did. The problem with that is there are often no comparators to support their assumption, or similar properties in the area that have sold for that increased price.
One property urban myth that seems to go alongside talk of down-valuations is to ‘try a different lender’, in the hope they might offer a heightened valuation. Suffice to say this is not a recommendation of ours. All surveyors work on behalf of a mortgage lender and as such it is our job to assess their lending risk on the mortgage tied to the property. This demands an evidence-based approach to ensure an accurate valuation.
At present, much of the talk around supposed down-valuations has centred on the purchase market but I suspect we could see this shift into the remortgage sector as we see mortgage rates climb further. We have recently seen the average two-year fixed rate rise above 3% for the first time in over seven years. While at 3.17%, the average five-year fixed rate is now the highest recorded since May 2016, according to Moneyfacts.
With the recent hike in the Bank of England base rate – and more predicted to follow – those remortgaging will be looking to secure the best rate possible – even more so in a cost-of-living crisis.
Interestingly, our data shows that currently, the 70-80% LTV bracket is the area where we see the most down-valuations. With this and next year anticipated to be strong remortgage years, borrowers may be eager to stretch their LTV to the lowest it will go, in the hope of securing the best rate.
Down-valuations can be a cause of frustration for everyone in the property chain – surveyors included. Yet, the nature of the property market means they are to be expected on a small scale and we are currently not seeing anything in our figures to cause alarm.
Simon Jackson is managing director of SDL Surveying
