Properties undervalued by lenders

House sellers are suffering from valuation blues, according to the National Association of Estate Agents (NAEA).

The NAEA has conducted research which shows that residential properties are being undervalued by mortgage lenders causing sales and remortgages to fall through.

The research indentified discrepancies between agreed sale prices and valuations carried out by surveyors which were found to be having a detrimental effect on the number of property transactions.

The NAEA has estimated that mortgage lenders could be undervaluing properties by as much as 10% with a large majority (69%) of agents experiencing problems with lenders’ valuations after a sale is already agreed.

Furthermore, 65% of those who took part in the poll of UK agents said that property sales had fallen through as a result of down valuations. Further to this, 86% had seen further negotiations take place as a direct result.

Peter Bolton King, chief executive of the NAEA, said:

“Our members have heard in several cases that lenders gave specific instructions to their valuers as to how they should approach these valuations.”

“We all know that valuation is not an exact science and you can understand under current market conditions people erring on the side of caution. But is it fair that they value a property based on what might happen in the future rather than what is happening today?”

“Undervaluing properties creates the knock-on effect of sellers having to drop prices and those homeowners who are looking to re-mortgage their property being left with little room for manoeuvre.”

“Whilst I understand that lenders are operating under severe constraints, it is neither fair nor ethical for valuations to be lowered on the basis that it might reduce exposure to competitive loan rates”
“At a time of great market uncertainty, homeowners need help not more obfuscation from those operating within the property market.”

Meanwhile, figures released by the Bank of England have shown that the cost of mortgage finance rose again in July.

Commenting on Bank of England data, Simon Rubinsohn, Royal Institution of Chartered Surveyors chief economist said:

“This is a trend which is likely to become more pronounced over the next year. Coupled with the continuing challenge of actually managing to secure mortgage finance it is clear that some level of caution is still warranted regarding the prospects for the housing market. This is reflected in the recently revised RICS forecast for house prices.”

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