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.
elephant appealThe first 23 lots in our charity auction have now gone. But there are 22 more still up for grabs
The magicians using online collaboration to push boundaries
lifeIt takes year-long dedication to get Selfridges ready for 25 December. And they're already working on plans for 2015...
Jennifer Lawrence attacks mass media again over body image
- 1 America's 'virgin births'? One in 200 mothers 'became pregnant without having sex'
- 2 Sun will 'flip upside down' within weeks, says Nasa
- 3 Ian Watkins: Paedophile Lostprophets singer sentenced to 35 years for child sex offences, as judge labels him a 'dangerous sexual predator'
- 4 Christmas comes early: Justin Bieber announces he's 'retiring from music'
- 5 Children evacuated from swimming pool after prosthetic leg mistaken for paedophile
Exclusive: Young people ‘want UK to stay in Europe’: Four in 10 adults aged 18 to 24 are ‘firmly in favour’ of membership, poll shows
You can STILL be jailed for being a republican, government confirms, and it remains illegal to even 'imagine' overthrowing the Queen
Kiss and yell: Italian protester charged with sexual assault after kissing riot police officer
Fighting back: the woman giving a voice (and 49,999 others) to the victims of sexism - by giving an airing to their horror stories
PM denies two child limit for benefits is part of Tory welfare policy
Ethan Couch: Texas quadruple murderer – or a victim of ‘affluenza’?
- < Previous
- Next >
iJobs Money & Business
£25000 - £32000 per annum: Harrington Starr: Junior Business Analyst - Banking...
£25000 - £35000 per annum + benefits + bonus: Harrington Starr: Business Analy...
£50000 - £75000 per annum + benefits + bonus: Harrington Starr: Implementation...
£50000 - £60000 per annum + BONUS + BENEFITS: Harrington Starr: A leading prov...
Day In a Page
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A Grade II-listed home with six bedrooms, secluded landscaped gardens and views across Hadley Green
A Grade II-listed mansion with two apartments and a cottage, near Gretna Green
A three-bedroom Grade II-listed mews house with vaulted ceilings and roof garden
A spacious Grade II-listed family home with annexe and equestrian facilities among four acres of land in Itchingfield
A four-bedroom home with exposed brick walls and open fires in the picturesque village of Northill
A Grade II-listed property with five bedrooms and unique tower, overlooking Hastings Old Town
A charming five-bedroom detached family home, set within half an acre in Kew
A two-bedroom maisonette set on the top two floors of a period building, close to Kentish Town Tube.
Take advantage of the extra space provided by former stables and outbuildings at this five-bedroom farmhouse.
This three-bedroom Victorian terrace is near to Queen’s Road Peckham station, Nunhead station.
A five-bedroom modern house with terrace, swimming pool, Zen treehouse and large carp pond
An unexpected gem with four bedrooms, remarkable vaulted reception and a galleried study area
A five-bedroom house in one of Lymington's most sought after tree lined avenues, moments from the marinas and sailing clubs
A grand early 19th century B&B close to the historic harbour, with four en suite bedrooms
A four-bedroom, 17th century home with walled gardens, a landscaped terrace, cellar and open fires
A six-bedroom house with five bathrooms and four reception rooms spread over 4,000sq ft of luxury living space
A stunning three double-bedroom apartment with two decked terraces in the exclusive gated community, Bromyard House
A 10-bedroom period, family home amid beautiful surroundings in the centre of the Wentworth Estate in Longcross village
A stylish three-bedroom apartment with two bathrooms and private landscaped garden, moments from Fitzroy Square
A Grade II-listed Elizabethan barn with landscaped gardens, exposed elm beams and four bedrooms, all with lovely views
A six-bedroom family home, dating back to 1280 with four reception rooms, barn, swimming pool and tennis courts in Harwell
A spacious two-bedroom flat, refurbished to a very high standard with private landscaped garden, close to Kentish Town station
An exceptional two-bedroom apartment with balcony and underground parking in the centre of Richmond
A one-bedroom, luxury, duplex apartment in the grand landmark building, Imperial Hall
Run a fabulous boutique shop, live above it in a one-bedroom flat and let a second one-bedroom flat that comes part and parcel
A Grade-II listed, thatched cottage in Hundleby village, with five bedrooms, a coach house and three and a half acres
A spacious two-bedroom flat in the heart of Hoxton Square with wooden floors and roof terrace
A five-bedroom family home with stunning pool and gym complex set among two acres of land
A six-bedroom period house with heated swimming pool and a separate two-bedroom annexe cottage in Townlake, £795,000
A spacious and contemporary two-bedroom flat arranged over three floors, with garden patio close to St George Square, £600,000
A one-bedroom flat in a beautiful Regency building opposite the beach in Kemp Town, £190,000
A two-bedroom flat with London skyline views close to Surrey Quays. £395,000.
A seven-storey tower with three bedrooms and a stunning roof terrace. Guide price: £850,000.
A 16-bedroom country pile with nine reception rooms, four self-contained flats and a 13th century Peel Tower. £850,000.
A classic six-bedroom Victorian Manse house 10 miles from Edinburgh. £495,000.
John Lennon's childhood home in Liverpool to be sold at auction. Guide price: £150,000-£250,000.