There goes the neighbourhood ... and the cheap loan
As valuations are dragged down by a stagnant market and forced sales, homeowners hoping for a good deal when they remortgage may be in for a shock.
Sunday 07 December 2008
Homeowners looking to remortgage could be facing valuations 30 per cent lower than their homes were worth in autumn 2007, when the market was at its peak – even though average prices have only fallen by around 15 per cent during this time. This harsh reality was revealed last week by Energy Reports and Surveys (ERS), the valuation arm of conveyancing giant LMS.
The widening gulf between homeowners' price expectations and the reality is down to growing numbers of forced sales or repossessions, which are pushing down estimates of what all homes are worth, says ERS managing director Paul Staley.
"To achieve a valuation for mortgage purposes, a valuer is required to take several factors into account: the area; the size and type of the home; and the guide sale price they have been given or the last valuation. But valuers will also need to find three comparable properties and what they recently sold for. And as there is virtually no activity on the open market, forced sales and repossessed homes being sold at auction are being thrown into this basket of averages," Mr Staley said.
Repossessed homes are currently selling at up to 50 per cent less than their peak value, which means valuations on open-market homes are being dragged down by up to 30 per cent – a lot more than most homeowners are prepared for.
Mark Blackwell, sales director at xit2, a data-management firm for the property industry, reports that the lack of comparable homes sold recently makes this market one of the toughest ever for surveyors. "They are finding there is little to back up their local judgement, and where the nearest benchmark is a repossessed home sold at auction, the considerable discount is putting other property values out of kilter." He adds that this is happening all over the UK.
One look at the most recent property market figures and it's easy to understand how "standard" valuations can be so skewed. Estate agents sold an average of 10.9 homes in the three months to October, according to the latest housing report from the Royal Institution of Chartered Surveyors, which equates to little more than a dismal three a month. But the Council of Mortgage Lenders says repossessions are set to rise by 50 per cent this year.
Compounding the problem of pessimistic estimates is that valuers are erring on the side of caution as they expect prices to slide further, adds Mr Staley at ERS. "When the market is going up, surveyors factor in these rises and give a generous valuation. But, of course, the same happens in reverse when the market is falling.
Ballooning repossession figures are becoming an issue for other sets of property statistics too. The Government's Land Registry figures, which are based on completed sales of homes, have been criticised as they exclude repossession sales at auction on the grounds that they do not reflect the "full market value" of the property.
Other house price indices, such as those from Nationwide and the Halifax, are based on approvals of mortgage valuations. These will factor in homes repossessed or sold quickly at auctions, as the valuation requires this "basket" of comparables.
As a result, the Land Registry figures published on 28 November showed a 10.1 per cent annual fall in prices across England and Wales – considerably healthier than the indices from Halifax and Nationwide, which revealed prices dropping by 15 and 13.9 per cent respectively.
A lower-than-anticipated valuation can have a big impact on homeowners' remortgage choices and may even put a new deal out of their reach. Andrew Montlake, partner at broker Cobalt Capital, says: "The biggest issue of a low valuation is that homeowners looking to remortgage may not get the rate they thought they would.
"Since the last time they may have remortgaged, lenders have gone on a 'flight to quality' and now employ three main tiers of loan to value (LTV). The cheapest deals are below 60 per cent LTV and then there is a 60 to 75 per cent tier and a 75 to 85 per cent tier. If your home is downvalued, your LTV will go up and may place you in the next bracket."
Ray Boulger, senior technical manager at broker John Charcol, says the most significant threshold to cross is the 75 per cent LTV. "As well as the interest rate you pay becoming considerably higher at this point, some types of deals – such as two- and three-year fixed rates – are no longer available with some lenders."
But if you don't qualify for your chosen mortgage with a new lender, at least you will be armed with a realistic valuation when it comes to knocking on the door of another bank.
If your mortgage valuation pushes you above 90 per cent LTV, it's highly unlikely any new lender will want your business. That said, though, it's now a lot less painful to stay put and revert to your existing lender's standard variable rate. If you are with Nationwide, for example, the current SVR is 4.69 per cent – so low that the lender announced last week it would not make any more mortgage offers based on this rate. Existing customers due to revert to its SVR at the end of their deal will still be able to do so.
As well as finding new deals, managing valuation expectations on behalf of clients is becoming a more important role for mortgage brokers, according to Mr Boulger.
"Clients often come in with hazy ideas of what their home is worth," he says. "They may base their knowledge on a valuation they received from an estate agent last month, for example – but find that actually it's 10 per cent under this.
"Basically, even homeowners who have carried out research on house prices, and factored in what would seem an appropriate fall, could still find that their final valuation is a lot lower than they thought."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
Tax change lays foundation for self-build boom in UK
Dirty tricks in a divorce can cause some nasty surprises
Simon Read: Frozen in time - the expat British pensioners who deserve a better deal
Pension firms must ask consumers more questions, says City Watchdog
Number of serially under-performing investment funds has increased by a fifth, survey reveals
- 1 Saudi preacher who 'raped and tortured' his five -year-old daughter to death is released after paying 'blood money'
- 2 Michelle Obama highlights harsh restrictions faced by Saudi women after meeting King Salman without wearing a headscarf
- 3 Amal Clooney gives excellent answer to fashion question at European Court of Human Rights
- 4 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 5 Isis publicly behead man in Syrian town square for 'insulting Allah' as he screams for help
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Greece elections: Syriza and EU on collision course after election win for left-wing party
British Muslim school children suffering a backlash of abuse following Paris attacks
9 reasons Greece's experiment with the radical left is doomed to failure
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...
£16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...
Day In a Page
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village