Having an offer accepted on a property can feel like the hardest part of buying a home is over. But what happens when your mortgage lender values the property for less than the price you’ve agreed to pay?
That’s exactly what happened to one of our clients after they agreed to purchase a London property for £750,000.
The buyer had a strong income, a suitable deposit and had already agreed the purchase with the seller. However, when the lender carried out its mortgage valuation, the property was valued at just £700,000. £50,000 below the agreed purchase price.
This created an immediate problem. The lender was no longer prepared to calculate the mortgage against the £750,000 purchase price, potentially leaving our client with a significant funding shortfall.
The Client
Our client was a professional buying a residential property in London.
They had:
Agreed purchase price: £750,000
Original deposit: £112,500
Original mortgage required: £637,500
Original LTV: 85%
Stable employed income
A strong credit profile
On paper, the mortgage looked relatively straightforward. The problem only emerged when the lender instructed its valuation.
The Problem: The Property Was Down-Valued By £50,000
The lender’s surveyor valued the property at:
£700,000
rather than the agreed:
£750,000 purchase price.
This is commonly referred to as a mortgage down-valuation. For a property purchase, mortgage lenders will typically calculate the loan-to-value against the lower of the purchase price or the lender’s valuation.
That meant the lender wasn’t prepared to treat the property as being worth £750,000 simply because that was the price our client had agreed with the seller. At an 85% LTV, the difference was significant.
Based on a £700,000 valuation:
85% × £700,000 = £595,000
Our client originally needed:
£637,500
That created a potential £42,500 mortgage shortfall.
Why Does A Mortgage Down-Valuation Matter?
A down-valuation doesn’t necessarily mean you can’t buy the property. But it can completely change the mortgage.
If you agree to buy a home for £500,000 and the lender values it at £450,000, the lender will normally use its valuation when determining the maximum mortgage available.
The buyer may then need to:
- Increase their deposit
- Renegotiate the purchase price
- Reduce their mortgage requirement
- Consider another lender, where appropriate
- Reassess whether they still want to proceed
This is why a mortgage valuation lower than the offer price can become a major issue even for a buyer who comfortably passes the lender’s affordability assessment. The lender isn’t only assessing you as a borrower. It’s also assessing the property being used as security for the mortgage.
The Challenge
Our client’s income wasn’t the problem. They could afford the mortgage they originally requested.
The issue was the relationship between:
Purchase price + lender valuation + deposit + LTV.
Finding a lender prepared to offer a larger mortgage based on affordability alone wouldn’t necessarily solve the problem. We needed to establish whether another lender might take a different view of the property while also making sure our client understood the risk of proceeding at the original £750,000 price.
What We Did
Rather than immediately submitting another mortgage application, we reviewed the valuation and the wider transaction.
We looked at:
- The lender’s valuation
- The agreed purchase price
- The client’s available deposit
- Alternative LTV scenarios
- Other suitable lender options
- The consequences of proceeding at £750,000
Our client was also able to use the down-valuation as part of their discussions with the seller. This was important. A £50,000 valuation gap isn’t simply a mortgage problem. It can also be useful information when deciding whether the agreed property price remains appropriate.
The Purchase Price Was Renegotiated
Following further discussions, the seller agreed to reduce the purchase price from £750,000 to £720,000.
That reduced the gap between the purchase price and the original lender’s valuation. However, our client still didn’t want to use substantially more of their savings to complete the purchase, so lender selection became particularly important.
Finding A Different Mortgage Solution
We reviewed alternative mortgage options rather than assuming the first lender’s valuation represented the only possible outcome. A different lender may reach a different valuation, as lenders can use different valuation processes, surveyors or valuation providers. However, there is never a guarantee that another lender will value a property more highly.
We identified an alternative lender whose mortgage criteria suited the client’s circumstances and submitted the application at the newly agreed £720,000 purchase price. The new lender instructed its own valuation.
This time, the property was valued at:
£720,000.
The revised purchase price and valuation now aligned. Our client was able to proceed without having to find the £42,500 shortfall created by the original valuation.
The Result
The client ultimately purchased the property for £720,000, £30,000 below the original agreed price, with the new lender valuing the property at the revised purchase price.
This allowed our client to proceed with an 85% LTV mortgage without having to find the £42,500 additional funding that the original down-valuation could have created.
Most importantly, they didn’t simply try to plug the funding gap with additional savings. By reassessing both the property price and mortgage options, we found a solution that allowed the purchase to proceed.
Can You Challenge A Mortgage Down-Valuation?
Sometimes, but a valuation appeal isn’t guaranteed to succeed. A lender may allow a valuation to be challenged where there is strong evidence that the property is worth more than the surveyor concluded.
This could potentially involve comparable properties that:
- Are genuinely similar
- Are in the same local area
- Have sold recently
- Are comparable in size and condition
Simply disagreeing with the valuation generally isn’t enough. Depending on the circumstances, it may be more appropriate to challenge the valuation, renegotiate the purchase price, consider another lender or use a combination of these options.
Can I Apply To Another Lender After A Down-Valuation?
Potentially, yes. A valuation from one lender does not necessarily mean every other lender will arrive at exactly the same figure. However, changing lenders shouldn’t be treated as a way of shopping around until somebody produces the valuation you want.
Another lender could reach:
- The same valuation
- A lower valuation
- A higher valuation
There may also be additional application, valuation or product costs involved, and changing lenders can delay the transaction. The decision therefore needs to be considered carefully.
Should I Still Buy A Property That Has Been Down-Valued?
That depends on your circumstances. A down-valuation should prompt an important question: Why does the lender believe the property is worth less than I’m paying for it?
There could be several explanations, including local comparable sales, the condition of the property or simply a difference between market expectations and the surveyor’s assessment. A mortgage valuation is primarily carried out for the lender’s purposes. Buyers may wish to obtain their own more detailed survey or professional valuation where appropriate. A down-valuation doesn’t automatically mean you should walk away. But it is something you should understand before deciding to proceed.
Oportfolio Insight
When a property is down-valued, borrowers often focus immediately on finding another lender. We think it’s worth asking a different question “Has the mortgage become the problem, or has the valuation revealed a problem with the price?”
If a buyer agrees £750,000 and a lender values the property at £700,000, finding another lender prepared to lend more doesn’t automatically make £750,000 the right price to pay. In this case, the valuation created an opportunity to reassess the whole transaction. That resulted in our client buying the property for £30,000 less than originally agreed while keeping their mortgage at an appropriate LTV.
Key Takeaways
- A mortgage down-valuation occurs when a lender values a property below the agreed purchase price.
- A lower valuation can reduce the mortgage available at a particular LTV.
- In this case, a £50,000 down-valuation created a potential £42,500 mortgage shortfall.
- Renegotiating the purchase price reduced our client’s property price from £750,000 to £720,000.
- Another lender may reach a different property valuation, but there is no guarantee.
- Mortgage affordability and property valuation are separate parts of a lender’s assessment.
In Summary
A mortgage valuation lower than your offer can be frustrating, but it doesn’t necessarily mean your property purchase is over. In this case, our client’s agreed £750,000 property was initially valued at just £700,000, creating a significant potential mortgage shortfall.
By reassessing the transaction, renegotiating the purchase price and exploring an alternative mortgage solution, the client was ultimately able to purchase the property for £720,000 with an 85% LTV mortgage £30,000 below the price they originally agreed to pay.
Has Your Property Been Down-Valued By A Mortgage Lender?
If your mortgage valuation has come in lower than your offer, Oportfolio Mortgages can help you understand what options may be available. We’ll look at your deposit, mortgage requirement, LTV and lender criteria to help establish the most appropriate next step.
Get in touch with Oportfolio today to discuss your mortgage options.
