The survey has been done and the report is in. But, the surveyor doesn’t agree with your figures. Wow, you didn’t see that coming. That’s thrown a spanner in the works. What happens next and what do you do?
First, what does this mean?
Well, as part of your mortgage application, the lender will pass the property details to their surveyors for their professional opinion. Amongst those details will be the purchase price or remortgage value and, in the case of a buy-to-let or for holiday let, it will also include your estimate of the rental income. What has happened is that the surveyor does not agree with what you have stated in the application form, believing, usually, it should be lower.
The surveyors are obliged to list in their report at least 3 comparable local properties, comparing what they sold for recently or what they rented for recently. This isn’t always easy for them, but they have to do it. And they still have to do it, whether they agree or disagree with the purchase price or rent. Those comparables will come under scrutiny, especially if they disagree with your figures. It is quite unusual for down valuations to be by more than 10% to 15%. If they are, then something more serious is happening.
At all times, the mortgage lender is going to use what their surveyor has told them and unless you can prove otherwise, which is nigh on impossible, their view stands.
Let’s now look at the consequences of the down valuation before we look at what you can do next. The easiest way to consider consequences is to use some numerical examples. There is no difference, at least overtly (see later), between the treatment of purchases and remortgages. Wherever a surveyor is involved, down valuations can happen.
Example 1 – Purchase
Purchase price £300,000 and you had applied for a mortgage of £200,000. The surveyor thinks it is only worth £250,000.
In your application, you chose a mortgage product from the lenders product range which applied to an LTV of 66%, being £200,000 loan divided by £300,000 expected purchase price. The lender now thinks that it should be £200,000 divided by £250,000 being surveyors view on the value, which is 80% LTV. Now you can only choose products from that product range. The lender is still happy to lend
Example 2 – Remortgage
You estimated your property to be worth £300,000 and you had applied for a mortgage of £250,000. The surveyor thinks it is only worth £250,000.
You had applied for a mortgage and chosen a product applicable to 83% LTV, being £250,000 divided by £300,000. Now this has become 100% LTV, being £250,000 divided by £250,000. At time of writing, there are no lenders that offer 100% mortgages, so the lender will not lend you £250k. They will usually offer 83% of the £250,000 being the surveyors view on value, but also might give you the option of borrowing more by taking a different product from their remortgage range which allows a higher maximum LTV.
Example 3 – Buy to let
Purchase price £300,000 and you had applied for a mortgage of £200,000. The surveyor thinks it is only worth £250,000. You expected £1400 per calendar month rent and surveyor think it’s only £1200 pcm.
Two things to consider here; rent and value. The lender has applied their safety margin calculation to the £1200 pcm rent, and it only supports a maximum loan of £180,500, so that is all the lender will offer you. Turning now to the surveyor’s valuation, you had applied originally for a mortgage at an 66% LTV; now it is 72.2% being £180,500 divided by £250,000. So, the lender is still happy. Had the surveyors rent estimate been higher, giving a consequentially higher allowable loan, you could still have been limited by the lenders maximum allowable LTV for buy to lets, which at time of writing is 75%.
You will see from the above that one of two things is happening;
The lender will continue to lend but on a different product from their range, as in example 1.
The lender will lend but less than you asked for, such that it fits a product from their range.
In Example 2 the down valuation resulted in a 100% LTV loan. If the lender’s product range had a maximum of 90% LTV, they would lend you 90% of £250,000, being £225,000.
In example 3, you asked for £200,000 but they are is still happy to lend £180,500.
Challenging the surveyor
This is possible but difficult and rarely successful. Surveyors have easy access, nowadays, to huge databases and only about 1% of challenges are successful. You will have to explain why their comparables are not valid. For example, that your property is not the same as others because it was in better condition, or had a higher specification e.g. better kitchen, or had a conservatory, or is closer to a commuter station, or is within the catchment area of a good school and their comparables aren’t or the comparables are just too far away. This is not an exhaustive list. You just have to come up really valid reasons and come up with your own comparables and a detailed rationale for your challenge. The same challenges can apply to the achievable rent.
Don’t buy it! (This is obviously irrelevant for remortgages)
Unexpected as it may seem, you and the lender are on the same team; it is the vendor and the estate agent who are on the other team. The lender and the surveyor have more experience than you and probably of the immediate locale too – it’s all they do all day, every week. It is more than likely that the lenders has other mortgages in the area too. To look at it another way, if the surveyor had pointed out a structural defect you would have listened to that opinion. So, listen to the professional opinion on value and/or rent.
Renegotiate the price. (again, irrelevant for remortgages)
You have a very powerful, experienced, credible, professional “friend” in the surveyor. Go back to the agent and show them the survey. You would have done so had there been a structural fault, so do so now when the value is in debate. Note that nowadays, most lenders do not have their own team of surveyors; they all use national firms. The down valuation is not a criticism of you, it is a criticism of the property. You can point this out to the estate agent. If you pull out of the purchase and the agent sells to someone else, then that person could well end up with the same surveyor even if they don’t use the same mortgage lender. That surveyor is unlikely to change his view between his two visits. Hence, it is better for the agent to renegotiate with you
Find the extra
You can still buy. The lender is not saying that they will not lend. What they are saying is they will not lend as much as you expected. If you cannot negotiate a lower price, then you can still buy but you will have to make up the difference between what you expected as a loan and what you are going to get.
Change Mortgage lender
Of course, this is an option but you have to consider what extra costs you will incur in doing this. You also have to consider the time that this will take. For a purchase this could affect the willingness of the vendor to sell to you. If you are remortgaging and are on your current lenders disadvantageous base rate, how much longer are you going to be on it? The main point here, though, is the one made in point 3 above – you may get the same surveyor!
For example, you are buying a converted windmill – very nice!
You have two hurdles to get over:
- How on earth does the surveyor come up with even one comparable. The consequence is that the valuation is going to be cautious. That doesn’t mean an automatic down valuation; our experience in purchases is that the surveyor usually agrees. But beware remortgages; it is a real problem for the surveyor.
- The lender always considers “the worst”, because that is what they do. What happens if they have to repossess the property because you have got into financial difficulties? How big is the market for people wanting people buy windmills, how easy would it be to sell and how long would it be on the market? There are no answers to this, you just have to hope that the lender is on your side. A good brokers choice of lender for you and their advice are worth any fee they charge.