London-based mortgage brokers are reporting unpredictable valuations on purchase and remortgage applications, with surveys being returned tens of thousands of pounds lower than expected.
Several mortgage brokers say they have received valuations that have been between £11,000 to £140,000 lower than either the purchase price or estimated value for a remortgage.
Speaking on the Mortgage Solutions Podcast, James Chisnall, director of City Finance Brokers, said he was pleased to see lenders offering mortgages to borrowers with smaller deposits. But it was proving difficult to get some of those cases to offer because of “significant down valuations in the market”.
James Chisnall’s team has received several valuations on high loan to value (LTV) applications that have come in significantly lower than the purchase price.
A month ago, a property in Kensington on the market for £715,000 was valued at £650,000. A further two properties, one in Canary Wharf and the other in New Maldon, south west London, with purchase prices of £595,000 and £480,000 went on to be valued at £455,000 and £425,000 respectively.
Surveyors, said Chisnall, appeared to be valuing properties in the higher loan to value brackets with extreme caution and with no comparable evidence of previous sales during the pandemic to guide them.
One of the surveys, valued £100,000 less than the client’s own estimate, had paragraphs from the Royal Institution of Chartered Surveyors (RICS) own guidance pasted in to the comments section to justify the valuation decision.
It read: “As at the valuation date, we consider that we can attach less weight to previous market evidence for comparison purposes, to inform opinions of value.
“Indeed, the current response to Covid-19 means that we are faced with an unprecedented set of circumstances on which to base a judgement.
“Our valuations are therefore reported on the basis of ‘material valuation uncertainty’…
“Consequently, less certainty – and a higher degree of caution – should be attached to our valuation than would normally be the case. Given the unknown future impact that Covid-19 might have on the real estate market, we recommend that you keep the valuation under frequent review.”
Chisnall said: “Valuers are so nervous right now. If they value a property which is being bought at 90 per cent loan to value and later the lender loses money when the property is sold, the lender can come after them to claim for their losses. But there is no financial recourse to down valuing a property.”
Colin Payne, associate director, Chapelgate Private Finance, had a valuation for the remortgage of a property close to Hampstead high street in north west London returned at £890,000, £85,000 lower than the owner’s expectations. The application had been at 75 per cent LTV.
Payne said: “I had a conversation with the agent that sold the property in 2013 and viewed the property in 2019 for a market appraisal for the client. He felt a value of £975,000 was reasonable. He certainly expected no less than £950,000 so whilst we anticipated that the valuation may drop we certainly didn’t expect such a dramatic drop.
“One of the reasons for the lower valuation was “mortgage valuation uncertainty”.
Payne said he regularly speaks to agents for comparable evidence when before submitting remortgage applications.
Payne has not had any issues with purchase valuations, however.
Jo Jingree, mortgage broker and owner of Mortgage Confidence, is based in south east London. She has recently received two down valuations. A survey on a first-time buyer purchase in south Croydon came back £11,000 lower than the purchase price of £346,000, pushing the case to 90 per cent LTV.
And a remortgage on a buy-to-let flat in east London, expected at £280,000 valued at £245,000 instead.
However, Mortgage Solutions spoke to four other London brokers who said they had not received any problems with surveys being lower than expected.
Asking price estimates
Asking prices, however, are not valuations as surveyors frequently remind the market.
John Baguley, RICS tangible assets valuation director, said: “When house prices are falling or rising at a faster rate than typical, as they are in some areas of the country or when transaction levels are low, surveyors have to be very certain they can evidence the value of a property on paper. The role of the valuer is to assess the market value of the property to an internationally recognised definition.
“So, if a valuation is less than the estimate that the estate agent or seller originally placed on the property, consumers can still go ahead with the sale by covering the difference with their own money or funding, but the mortgage lender would be likely unwilling to take the risk.”
Material valuation uncertainty
RICS issued the guidance on “material valuation uncertainty” on 19 March.
A forum of firms has also been set up by RICS, to consider on a weekly basis whether a material valuation uncertainty clause is still appropriate to use for different types of property classes.
For example, at the last meeting on 7 July, the forum which includes firms such as Savills, Colliers and Knight Frank, agreed that student housing and central London offices should no longer be subject to the clause. However, the clause remains applicable to residential housing.
RICS’ member valuers have been told that they should consider on a case by case basis whether to include commentary in their reports that the valuation is materially uncertain and they should have a sound reason for doing so.
National mortgage broker Richard Wylder, of Mortgage Market Place, said he thought the problem was localised to the capital and surrounding areas.
“The valuations we have received have been holding up so far,” he said. “I think this issue is more unique to London. It’s been overheated for a while which is making valuers more cautious.”
Samantha Partington is a freelance trade and consumer journalist writing about property and personal finance. Previously she worked worked for the Daily Mail and Property Week. She is the former deputy editor of Mortgage Solutions and editor of Specialist Lending Solutions.
Before becoming a journalist, Samantha worked as a mortgage broker and latterly for a mortgage, bridging and secured loan lender. Samantha is CeMAP qualified. Follow her on Twitter @SamJPartington1.