Bank Undervalued Property - What can you do?
(Last Updated: 10/10/2023)
17/08/2023
42,088
10 min read
A bank undervaluing your property can be fatal to a house purchase, as it means that the mortgage lender disagrees with the property value you offered.
You may disagree with the house valuation, however, the mortgage lender has employed a qualified Royal Institute of Chartered Surveyors (RICS) valuer to undertake the mortgage valuation, so you will find it hard to challenge their opinion.
Is it a bad thing that the house valuation is less than your offer? Could this open up the opportunity to negotiate or does it mean you have to fight with the lender because you disagree with the house valuation? We cover all of this in our article below.
There is no guarantee the bank's valuer will change their valuation, especially if the evidence you provide isn't detailed enough to prove your desired valuation. The question you need to consider is: do you want to argue up the price with the bank, where you should be arguing down your offer with the seller?
If the mortgage lender undervalued property then they would confirm the price they feel the property is worth and any factors affecting the value.
This is reported to the lender within the RICS surveyors Mortgage Valuation. However, if the mortgage valuation comes back under what you offered, is this such a bad thing for you?
Not only could the mortgage lender be protecting you from buying a property over the asking price, but it would also prove the actual price you should be offering the seller for their property, not based on an estate agent's estimate, but by a trained third party.
Read on to find out why mortgage lenders undervalue property and what you can do about it including our tried and tested email template to help you negotiate your property price with the estate agent.
Sadly mortgage lenders don't have the same opinion and they value your home differently. The mortgage lender's main concern is to protect their loan in the event they have to repossess. In these cases, they need to market the property cheaper for a fast sale.
If the property was priced higher than the market will pay, then they may end up having to sell the property at a loss looking then to try and get the balance repaid from you.
This is the reason why banks value properties based on what properties in the local area have sold for , and not using valuations for under-offer properties and marketed rates.
If the property hasn't sold, then a mortgage lender won't consider the property value in their calculations for how much your property is worth.
If your bank undervalued your property, then ask the bank for evidence of the comparables they used to help them calculate their value.
Afterwards, go to Rightmove or Zoopla and use their 'sold houses' search in your local area and find comparables for property prices. Remember your comparables must:
You may be thinking this won't affect your house, however, even those properties that are in a reasonable condition may not be in the mortgage valuer's eyes. Here are some conditions that may affect your mortgage valuation:
In cases like this, your mortgage lender will note how much the property would be valued in a good condition, however, it will then state what the property is valued in its current condition.
The mortgage lender may agree to lend the full amount; part paying an amount and then paying the balance once the property has been brought up to a good condition and re-valued by their mortgage valuer.
This may mean that your offer falls through as the seller is no longer able to afford the purchase of their new home. There is little you can do to prevent this, other than to pay the balance of what the property is currently worth according to the mortgage lender and your offer.
If, however, the seller can still afford to sell to you at a lower value then you'll need to use our following example to help you get your new offer agreed. Keep the email positive, factual and focused on the solution of still being able to buy the property.
Dear {ESTATE AGENT NAME},
Re: {Property Address}
I hope you are well.
We are progressing well with the conveyancing and have the property searches, property survey and mortgage valuation complete. We have however encountered a challenge that we are going to need your help with.
The Mortgage Lender has returned their assessment of the property valuation and they state it is only worth £250,000. This falls £40,000 under our offer price of £290,000.
The challenge we face is that the mortgage lender won't lend me the required mortgage to fund the purchase at the current agreed price. This also means that any other buyer getting a mortgage isn't going to be able to buy the property at this price.
This is very disappointing because I was happy to pay the asking price, however, I am sure you'll appreciate that I can't purchase a property that exceeds its current worth in the current market.
I do want to continue to buy the property and have invested a lot of time and money to date to achieve this. In order to proceed could you discuss the mortgage valuation with the seller and confirm if they'd be happy to proceed at the current market value of £250,000.
If this can be agreed then we can move to exchange over the next couple of weeks.
I look forward to hearing from you.
Kind regards
YOUR NAME
There are no guarantees that the seller will accept your new offer which can create a stalemate and if you proceed, you risk going into negative equity (buying a property which is not worth what you paid for it).
This doesn't mean you have to put offers on other properties you find, however, it does mean that if something goes wrong and you find another property you like, it makes the decision of pulling out less emotional and more based on facts.
These tips will give you the best chance of negotiating a reasonable reduction in the purchase price of your new home. Remember, every pound you pay over the current asking price in its current condition, will mean the property will have to go up in value, otherwise you will be in negative equity.
For more conveyancing support call our team of specialists on 0333 344 3234.
You may disagree with the house valuation, however, the mortgage lender has employed a qualified Royal Institute of Chartered Surveyors (RICS) valuer to undertake the mortgage valuation, so you will find it hard to challenge their opinion.
Is it a bad thing that the house valuation is less than your offer? Could this open up the opportunity to negotiate or does it mean you have to fight with the lender because you disagree with the house valuation? We cover all of this in our article below.
Can you challenge a property valuation?
Where the mortgage valuation is lower than your offer, you can challenge their property valuation. You need to first get a copy of the bank's valuation report, to read why the property has been undervalued. You'll then need to provide:- Evidence of completed properties of similar size, condition and location to your property; and/or
- Evidence a defect, such as subsidence, isn't actually affecting your property.
There is no guarantee the bank's valuer will change their valuation, especially if the evidence you provide isn't detailed enough to prove your desired valuation. The question you need to consider is: do you want to argue up the price with the bank, where you should be arguing down your offer with the seller?
How does the bank value the property?
A bank property valuation decides the current market value of the property based on:- recently completed sales of similar properties in the area;
- the current condition of the property; and
- their opinion of the local housing market.
If the mortgage lender undervalued property then they would confirm the price they feel the property is worth and any factors affecting the value.
This is reported to the lender within the RICS surveyors Mortgage Valuation. However, if the mortgage valuation comes back under what you offered, is this such a bad thing for you?
Not only could the mortgage lender be protecting you from buying a property over the asking price, but it would also prove the actual price you should be offering the seller for their property, not based on an estate agent's estimate, but by a trained third party.
Read on to find out why mortgage lenders undervalue property and what you can do about it including our tried and tested email template to help you negotiate your property price with the estate agent.
Why do banks undervalue properties?
No comparable sold property values
This is the most common reason for your property to be undervalued. It means that it simply isn't worth what you are looking to pay for it, even if you could still afford it.Sadly mortgage lenders don't have the same opinion and they value your home differently. The mortgage lender's main concern is to protect their loan in the event they have to repossess. In these cases, they need to market the property cheaper for a fast sale.
If the property was priced higher than the market will pay, then they may end up having to sell the property at a loss looking then to try and get the balance repaid from you.
This is the reason why banks value properties based on what properties in the local area have sold for , and not using valuations for under-offer properties and marketed rates.
If the property hasn't sold, then a mortgage lender won't consider the property value in their calculations for how much your property is worth.
If your bank undervalued your property, then ask the bank for evidence of the comparables they used to help them calculate their value.
Afterwards, go to Rightmove or Zoopla and use their 'sold houses' search in your local area and find comparables for property prices. Remember your comparables must:
- have sold within the last 6 months
- be within your local area - preferably on your street
- be for the same size, size and condition as yours (see below)
Property in poor condition
We've all heard of buying a house that is a 'doer upper' however buying a property in disrepair may mean that you can't achieve the maximum mortgage value you would like.You may be thinking this won't affect your house, however, even those properties that are in a reasonable condition may not be in the mortgage valuer's eyes. Here are some conditions that may affect your mortgage valuation:
- Damp
- Subsidence
- Part concrete build (often found in 1960/70's bungalows)
In cases like this, your mortgage lender will note how much the property would be valued in a good condition, however, it will then state what the property is valued in its current condition.
The mortgage lender may agree to lend the full amount; part paying an amount and then paying the balance once the property has been brought up to a good condition and re-valued by their mortgage valuer.
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Breaking the news to the seller
No seller wants to find out that their property isn't worth what they thought it was and worse still it could mean they have underbudgeted what they could afford on their onward purchase.This may mean that your offer falls through as the seller is no longer able to afford the purchase of their new home. There is little you can do to prevent this, other than to pay the balance of what the property is currently worth according to the mortgage lender and your offer.
If you do this, then you are paying above what the market thinks the property is worth, and there is no guarantee the property will go up in value to be actually worth what you paid for it.
If, however, the seller can still afford to sell to you at a lower value then you'll need to use our following example to help you get your new offer agreed. Keep the email positive, factual and focused on the solution of still being able to buy the property.
Example email to the selling estate agent
Dear {ESTATE AGENT NAME},
Re: {Property Address}
I hope you are well.
We are progressing well with the conveyancing and have the property searches, property survey and mortgage valuation complete. We have however encountered a challenge that we are going to need your help with.
The Mortgage Lender has returned their assessment of the property valuation and they state it is only worth £250,000. This falls £40,000 under our offer price of £290,000.
The challenge we face is that the mortgage lender won't lend me the required mortgage to fund the purchase at the current agreed price. This also means that any other buyer getting a mortgage isn't going to be able to buy the property at this price.
This is very disappointing because I was happy to pay the asking price, however, I am sure you'll appreciate that I can't purchase a property that exceeds its current worth in the current market.
I do want to continue to buy the property and have invested a lot of time and money to date to achieve this. In order to proceed could you discuss the mortgage valuation with the seller and confirm if they'd be happy to proceed at the current market value of £250,000.
If this can be agreed then we can move to exchange over the next couple of weeks.
I look forward to hearing from you.
Kind regards
YOUR NAME
There are no guarantees that the seller will accept your new offer which can create a stalemate and if you proceed, you risk going into negative equity (buying a property which is not worth what you paid for it).
Down Valuation Advice for Buyers: Have a plan B
The feeling of only having one property to go for makes the loss of it even harder if you have to pull out because the property is overpriced. The best advice is to keep an eye on the property market and don't stop viewing new properties even once your offer is agreed.This doesn't mean you have to put offers on other properties you find, however, it does mean that if something goes wrong and you find another property you like, it makes the decision of pulling out less emotional and more based on facts.
These tips will give you the best chance of negotiating a reasonable reduction in the purchase price of your new home. Remember, every pound you pay over the current asking price in its current condition, will mean the property will have to go up in value, otherwise you will be in negative equity.
For more conveyancing support call our team of specialists on 0333 344 3234.
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Written by:
Andrew Boast
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Reviewed by:
Caragh Bailey
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
