Undervaluing scuppering house sales, say estate agents

House sales and remortgages are falling through because some mortgage lenders and surveyors are deliberately undervaluing homes, estate agents claimed today.

The National Association of Estate Agents (NAEA) said properties were having at least 10 per cent knocked off the value as lenders aimed to protect their investments in a falling market.

One major mortgage broker said around three-quarters of remortgage deals that collapsed were affected by a lower-than-predicted house valuation.

Mortgage lenders such as banks and building societies regularly commission surveys to ensure the agreed sale price accurately reflects the property's current value.

If the lender's valuation comes in lower, they can choose to offer a smaller mortgage which could leave the buyer without enough money to meet the asking price and force the deal to fall through.

Lenders also check the value of a property when it is being remortgaged to ensure they are not lending more than it is worth.

Banks and building societies can be caught out if they repossess properties then sell them for less than the outstanding loan amount, suffering a loss as a result.

NAEA chief executive Peter Bolton King told the BBC: "(Lenders) are perhaps worried about their professional indemnity insurance - they are thinking back to the 90s when surveyors were being sued by lenders for allegedly not getting the valuations right.

"They are perhaps worrying about the market and almost deliberately knocking off 10% almost regardless of what the property sold for.

"The other reason, which I found more worrying, is that we are hearing anecdotally that lenders are giving specific instructions to their valuers as to how they should approach these valuations."

Andrew Frankish, managing director of independent broker Mortgage Talk, added: "With the mortgages that are not completing, we believe up to half of them are affected by the valuation.

"What we mean by that is the valuation is coming back at lower than they predicted, which pushes them into a higher loan to value, which means the products are too expensive or the banks are reluctant to lend in that market at all.

"This is even worse in remortgages where around three-quarters of remortgages are affected."

The Council of Mortgage Lenders said it worked with professionals who are "duty bound to give accurate valuations".