Trying to put a value on a property is a delicate business; a complex equation factoring in size, location, condition, rarity, kerb appeal, and the state of the housing market, present and future.
And some people believe that in a free market a property is simply worth what somebody is willing to pay for it.
This may be true for cash buyers, but for anybody who requires borrowing there is a complicating factor: the mortgage valuation. This is the process where, after a buyer has applied for a mortgage, their lender will get someone to check whether they think the property is worth what they’re asking to borrow.
In a jittery market, it is increasingly likely that the bank-employed surveyor who values your home will err on the side of caution and come in below the agreed sale price, leaving you facing a financial black hole and a serious problem.
Here, Telegraph Money explains why properties can get down valued – and what you can do to keep the deal.
Why do down valuations happen?
Greedy sellers are one cause of down valuations, according to buying agent Nigel Bishop of Recoco Property Search, who has seen a “clear increase” in cases over the past couple of years.
“Some sellers are still basing their asking price on the demand seen during the pandemic,” he said. “The market has very much adjusted since then, which leads to more lenders determining a lower property value.”
Mark Lawson, partner at The Buying Solution, says lack of confidence in the market is another factor.
“Given the slow start to the year, the lack of current deals, and the prospect of two major elections looming, coupled with turbulence in the Middle East and Europe – and therefore the potential for a slow market for the rest of 2024 – it is not surprising that valuers are being more cautious than usual,” he said.
But down valuations can also happen in a hot market. When buyers are competing against each other to buy, they may end up pushing offers above local ceiling prices in order to clinch a deal, and a surveyor may step in as a voice of reason.
And in any kind of market it can happen if a surveyor spots problems with the condition of the property, which they believe will impact its resale value, and has not been priced into the deal.
How to get around a down valuation
Whatever its exact cause, a down valuation is a property headache all round, whether you are a buyer, a seller, stuck in a chain, or hoping to remortgage.
The good news is that it doesn’t need to spell the death of a deal.
Increase your deposit
If a lender doesn’t agree to stump up the amount of borrowing it’s been asked for, the buyer can increase their deposit to cover the shortfall. According to research from HBB Solutions, a professional property buyer, the average down valuation stands at 2.8pc.
How feasible this is depends on the property price, and what the buyer can afford. With average house prices in England standing at just over £300,000, according to the Office for National Statistics, this represents a gap of around £8,000.
But in London, where the Halifax House Price Index finds the average price stands at almost £540,000, that gap jumps to around £15,000. A £1m home would see an average down valuation of almost £30,000.
The Homeowners Alliance suggests setting your asking price at 5-10pc above what you would accept, to allow for negotiation.
Although price is the most obvious consideration when agreeing a deal, and how willing you are to negotiate, Citizens Advice says there are other factors to consider, such as the type of buyer you are looking for.
For example, first-time buyers won’t be burdened by being part of a chain so are likely to be able to complete more quickly. For an even quicker sale, cash buyers will be ready to go without needing to wait for mortgage approvals – but will be rarer.
If you aren’t happy with an offer you receive from a potential buyer, you can go back and negotiate. Make sure you have a price in mind when you enter a conversation so you don’t lose out.
If you are not a confident negotiator there is a risk any savings you make by not using an estate agent could be lost through a reduced sale price, warned Ms Regan.
Another area you could struggle with is getting proof that a potential buyer is in a financial position to purchase the property – without this, you could face difficulty during conveyancing.
“Making sure that the buyers are in a position to process. At Purplebricks we will check people have proof of funds and an agreement in principle to make sure they are ready to make an offer on the property,” said Ms Orme.
Buyers who are keen to move forward on a deal are likely to be happy to provide proof of funds, but it could be a red flag for the deal if they aren’t.
Accepting an offer and instructing a solicitor
Once you are happy with an offer, it is time to accept. You do this first verbally and then in writing – either by post or email. Once there is written confirmation you need to get the lawyers involved.
Conveyancing is a specific area of law that deals with the transfer of property rights from an owner to a buyer and this is often the most time consuming part of the sale process.
It is worth doing your research before committing to a lawyer to handle the sale. A recommendation from friends or family is always a great way to find someone. However, if this isn’t possible the Law Society has an online search to help you find the right people, as does the The Council for Licensed Conveyancers.
It is always important to check their online reviews to see what others have said about their service before signing up.
Renegotiations and getting the deal over the line
As part of their own due diligence, buyers may ask for a survey to be completed. This is a report they pay for completed by a professional that provides an idea of the value of the home and what repairs, if any, are needed.
If the report reveals previously unknown issues, there is a chance the buyer will want to renegotiate. This isn’t unusual. If repairs need to be done it is often the case that either the seller agrees to carry them out before completion, or the price is knocked down to account for the money the buyers will need to invest.
This challenge has become more apparent in recent years after the Brexit vote and the pandemic, when investors withdrew their money over fears of a property crash.
By comparison, closed-ended funds such as real estate investment trusts (Reits) do not suffer from a liquidity mismatch, as they have a fixed pool of capital that is not affected by investors buying and selling.
In terms of funds to buy, Ms Admans recommended CT TR Property Trust which is mainly invested in listed property shares, with physical property accounting for a maximum of 15pc of the portfolio.
The geographic split is 25pc to 50pc UK, with the remainder in Europe. It is currently trading at a discount of 7pc to net asset value.
“The manager, Marcus Phayre-Mudge, has deep sector experience and has built up a strong track record of generating income using a differentiated approach to property investing,” Ms Admans added.
John Moore, of wealth manager RBC Brewin Dolphin, recommended PRS Reit which invests in new-build family homes for the private rental market.
“Even though it is one of the scale players in the sector, it only manages 5,000 units, which is a drop in the ocean of [the Government’s] 300,000 per year new homes target – so there is huge room for growth,” he said.
“Yet the share price has not reflected any of that – it trades at a substantial discount to net asset value and offers a yield of more than 4.5pc.”
In addition, Ms Admans tipped Finsbury Global Property and Schroder Global Cities Real Estate. Both are open-ended funds, however they invest in Reits and listed property companies, removing the liquidity risk.
Shares in property companies
There is a chronic shortage of housing in the UK, and it could be wise to invest in companies that are working to address this issue.
Vistry and Persimmon are among the housebuilders who stand to benefit from the pledge to build more housing. Mr Moore said: “There has been a lot of movement in Vistry’s share price since interest rates picked up – even by the sector’s standards.
“But it should be in line to benefit as greater efforts are made to reform the planning system and provide more affordable housing, while offering a yield of nearly 6pc in the meantime.”
At the very top end of the market, don’t be fooled into thinking it’s all gone quiet. According to agency Beauchamp Estates 54 properties worth over £15m sold in 2023 driven by interest from the US, Middle East, China and India.
The firm is expecting more of the same this year, with these buyers seeing central London as a “proven safe haven and stable asset class” regardless of what goes on within domestic politics says director Gary Hersham.
Nothing is perfect
The only way to establish when the bottom of the market has been reached is when prices start to go up – which can be too late for some. “If you find a property that ticks six or seven boxes out of ten, then be prepared to make a compromise and go for it,” recommends Nick Loweth at The Country House Department, an estate agency.
Extra help finding the perfect property
Buying agents
Increasingly present at the top end of the market, a buying agent is someone who will advise you on what (and what not) to buy and will also open properties that aren’t advertised on the standard web portals.
To prevent potential conflicts of interest, they are mandated to represent one client with a particular brief or search area, so, if you are looking in a particularly popular location or price point, find the right one sooner rather than later or you might find no one is available to help.
Door dropping
If nothing is coming up via online searches, it might be worth doing a letter drop in the search area or asking someone on the local Nextdoor group (a kind of hyper-local Facebook group) to post a message on your behalf. There are obviously no guarantees but it has been known to result in success – catching unawares someone who was thinking about selling.
Keep the letter simple and explain the details behind the move and the chosen street or property. Vendors are likely to be emotionally invested in their houses, so presentation is key.
Other options include posting on local Facebook groups or using Nokkel, an app that links buyers and sellers.
Getting the best price
Negotiating a price
If the market dynamics carry on from last year, push on the price. According to Hamptons, which looked through data from its parent company Connells and their 550-strong branch network, 55pc of the properties sold in 2023 went for below asking price.
“The mismatch between what price sellers expected to achieve on their home and what buyers were prepared to pay promoted more negotiation last year,” says head of research Aneisha Beveridge. Having said that, they also called the bottom of the market in November and as affordability improves and demand strengthens, this negotiating power will start to wane.
Don’t expect huge bargains, though. Richard Donnell of Zoopla says that mortgage regulations introduced in 2014 stopped the over-valuation of housing which is why the decline in house prices has been modest. Having said that, UK housing is still expensive by historic standards and Donnell anticipates prices will fall a further 2pc over this year as prices and incomes re-align.
Paying the price
Beware of renegotiating an agreed sale price, otherwise known as “gazundering”, warns Mark Harris.
He says: “Lenders will need to be told about the renegotiated price and, even if the amount borrowed remains the same, a new mortgage offer will be issued.
“This may mean paying a higher mortgage rate or, worse, the lender may reduce how much it is prepared to lend – especially if the affordability criteria have changed.”
Purchase costs
Remember, there is more to it than just the sale price. Data from the price comparison site Reallymoving shows the average cost of moving is now more than £14,000 – and much more for those buying at the top end of the market.
First, it’s the “soft costs”. Most mortgage lenders will require an arrangement fee and then there’s a valuation fee the lenders charge to check the property offers sufficient security for the loan.
A typical broker fee in the UK is between 0.3pc and 1pc of the value of the property, which works out as an average of around £500, according to Expert Mortgage Advisor.
Next is the survey, which many prospective buyers pay for even though the sale falls through. Budget for paying this more than once in the process of a house search and expect to pay between £400 and £1,000 each time.
Then there are conveyancing fees, which range from around £500 to £1,150, plus approximately £700 in disbursements (third-party fees for things like local authority searches), according to Reallymoving.
The final, and often the most substantial (after the property itself) is stamp duty. You can read all about that, here.
Deadlines and terms can be agreed between solicitors who then give a recommendation to their clients. The norm should be no more than 28 days.
And, I would suggest, at the start of these discussions, the seller’s solicitor has most of the documents in the home information pack to hand, minus a survey. This means that they can give a realistic timeline based on as much information as possible.
I would also advise that no timeframe is given without a complete chain, as that is nearly always going to result in disappointment.
Once a timeframe – and sale price – has been agreed by all parties in a chain (although clearly this isn’t practical with a long chain), the sellers should then remove the property from the market and deposit 2.5pc of the purchase price with his solicitor to be forfeited if they sell elsewhere.
Similarly the buyer should make a deposit that could compensate the seller if he withdraws or gazunders.
It can also be used as collateral to make sure that completion is done on time. If this isn’t possible then the parties should reach an agreement on an appropriate guarantee to be forfeited if the deal doesn’t go forward. And if the buyers decide to pull out there should also be some form of penalty, such as paying the seller’s costs up to the point of the withdrawal.
If there are likely to be delays that mean parties either need a bridging loan to proceed or move into temporary accommodation (this is quite common in Scotland), a price adjustment for the additional costs should be agreed at the outset.
It is up to the estate agent, and in some cases the lawyers, to pull together this deal and keep the show on the road. A good agent should be able to hold it together and manage any setbacks.
At this point, if it is an old house I would recommend a clause in the pre-sale agreement that addresses the risk that a survey uncovers significant issues. This could be that if the parties are unable to agree a revised price themselves, a chartered surveyor is appointed to recommend a new price.
On the assumption that all goes to plan, contracts are then exchanged on the agreed date with a day for completion pencilled in, although it can be left open to deal with last minute moving delays.
Of course these conditions won’t work in every situation and crucially you need lawyers who are prepared to do the extra work, including personal searches if necessary, and holding any pre-exchange deposit. The seller could offer to fund some of this additional work.
However, agreeing a timescale and encouraging the seller to provide as much documentation as possible upfront will give the buyer the confidence to instruct his solicitor to proceed with all the aspects of the purchase (contract enquiries, searches, mortgage, survey etc.) simultaneously.
If we are to breathe life back into the housing market, buyers and sellers need more security. A home purchase or sale is one of the biggest decisions we make and do not go into them lightly.
“In hindsight it would have gone anyway, because everyone was desperate for houses at that time,” she said. “But I still think it was worth it. I learned so much from Natalie about what should be done with colours.”
‘It created a buyer frenzy’
Rachel and Steve Hewitt are equally pleased with the changes wrought on their country cottage by a team of home stagers.
They had first put their property on the market in 2018 for just over £600,000 – their three children were almost grown up and they wanted to downsize from the four-bedroom cottage, which is close to Ashby-de-la-Zouch, Leicestershire.
They reasoned that downsizing would allow them to go mortgage-free, meaning Rachel, a gymnastics coach, and Steve, who worked in asset management, could retire early.
Unfortunately there were no takers for the house, which they had owned since 2003. “The market was very flat,” said Steve. “Brexit had put a massive handbrake on.”
In falling market conditions the couple decided they would be smart to go ahead and buy their onward home, a Grade II-listed townhouse in Melbourne, Derbyshire, and rent out the cottage until the market picked up.
In 2021 the couple were ready to try again. After two years of renting the house didn’t look its best and, aware of home staging from TV shows and encouraged by their estate agent, the couple hired Lemon & Lime Interiors to assist them in sprucing it up.
Elaine Penhaul, the company’s founder, visited the property and had a look around. Her verdict was that the circa 200-year-old house was gorgeous, but being let down by tired furnishings, shabby decoration, and general clutter – almost everything the couple hadn’t wanted to take with them to their new home had simply been left behind.
“It was just not going to sell for what it was worth,” she said. “It had not had any love for a very long time.”
Ms Penhaul advised her clients to sand and re-varnish their wooden floors and redecorate the cottage and its one-bedroom annexe – which Steve used as an office – in light, neutral colours.
She then set to work on the décor. Dark, dated sofas were replaced with off-white models loaned from her stock of furniture, a heavy wooden coffee table was swapped with a more modern glass version. “The rooms were spacious, but they didn’t feel it with all the dark furniture,” she said.
Clutter was removed, and replaced with a few carefully chosen accessories and artworks, and the results were undeniably impressive.
Rachel, 54, and Steve, 56, put their house on the market in early June 2020 with an asking price of £625,000. Within 10 days they had three asking price offers, and the sale was completed that August. “It created a buyer frenzy,” said Steve. “Buyers wanted a turnkey property that was contemporary, not twee, and that is what we offered.”
The total cost of upgrading and restyling the property came in at around £4,000, which Steve considers money very well spent.
“I think that there is a misconception that home staging is very, very expensive and only for £1m houses, and that is not true,” said Steve. “We spent a few thousand to optimise the price of our house.”
Most estate agents agree that home staging is a useful weapon in a home seller’s armoury, particularly in the current buyers’ market.
Samuel Richardson, head of sales at Carter Jonas’s Mayfair office, said most buyers simply aren’t willing to overlook clutter and scruff to focus on the potential of a property.
“They are cash rich and time poor and always looking for something they can move straight into,” he said.
There is, of course, much you can do to stage your own home – freshening up paintwork, decluttering, and a vase of flowers in the living room is only common sense. But, and particularly in high-end markets, aspirational buyers are looking for something more than a spic and span space.
Jo Eccles, founder and managing director of buying agency Eccord, recently found home staging a worthwhile expense when helping a landlord sell off a rental property.
“We arranged for all the scuffed walls to be repainted, removed the tired furniture and employed a home staging firm who dressed it beautifully, right down to vases and candles,” she said.
The property sold within two months for £15,000 below its £500,000 asking price, and the home staging cost just £3,000. “Had it not been staged, I think it would still be on the market,” she said.
But buying agent Guy Meacock, director of Prime Purchase, warns that not all home stagers are equal. If they don’t know their Gods True Cashmere throws from their Seletti light fittings you could end up wasting time and money.
“The ideal is to create an appearance of lifestyle,” he said. “It amuses me how often the table is set as though it’s a regular occurrence to have eight people round for a formal dinner party, with glasses for each course and three forks, knives and spoons. Nobody eats like that and it looks dated, cheapening the space.
“Another example I saw recently opted for 50 shades of grey; everything was grey, from walls to carpets and flooring and furniture. It was the perfect opportunity for some colour to really bring the space to life, but the stager filled it with cheap, vanilla furnishings, sucking even more life out of it.”
The key is that if you can sell then you are in a good position compared to others in the market, suggests Andrew Goodwin, chief UK economist at Oxford Economics.
However, it will be tricky if you are trying to upsize and use a mortgage to bridge that gap with the increased cost of borrowing.
“People refinancing might face a 300 basis point rise rather than 400 point rise, as rates have come down, so the debt refinancing costs are still higher,” says Goodwin.
For those looking to downsize, who may even be mortgage free, the market is more advantageous but the critical issue will be finding a buyer for a price you are happy with.
Preparing to sell your home
Whatever your position, those looking to sell in the next 12 months will benefit from remembering the fundamentals of selling property, says McNeil.
“It is the traditional thing which is to make sure your house is well presented and priced correctly when you go on the market,” he says. “Buyers will now ignore the few houses that are on the market at unrealistic prices and particularly in the average areas. So it is important to get your price right from the start.”
In order to get a good idea of what your property will be likely to sell for, have a look around your area. Are there similar properties on the market? How long have they been on for? Can you find a property that has had a successful sale recently and get the final price?
All this is useful information when setting your own expectations. And if you are using an estate agent, ask them for an honest guide price rather than the one you are hoping to achieve. It will likely save disappointment further down the line.
Once you have settled on a price, presenting your house well is important, says Farrance. Focus on making it look “nice and fresh”, with lots of light.
And from a practical perspective do everything you can to get yourself ready for a sale.
“If you are preparing for a move later in the year, start to look at your paperwork now.
“Where are your deeds, where are your mortgage documents? Some sales are held up at the conveyancing stage because documents are with solicitors that they dealt with 20 years ago and aren’t there any more,” advises McNeil.
Emilie Heinonen, who founded the interior design agency People and Spaces, chose Kingsdown, south of Cotham, for its family-friendly vibe – her family walk or cycle everywhere and she also likes the book club, where she says the average age is “around 83”.
“After living in London, Helsinki and Sydney we thought Bristol was the perfect place – a more ‘manageable’ version of London,” says Emilie, 43, whose husband is from Exeter.
“In my business I love the Georgian architecture of this little pocket.”
A little further out of the centre, Henleaze and Westbury-on-Trym remain popular with families for their villagey feel and sense of community, says Robert Nagle. “You can find a three-bedroom semi for around £600,000, a four-bed for £700,000 upwards.”
The agent is selling one for £845,000 in the catchment area for Henleaze Junior School (Ofsted rated Outstanding).
Along with nearby Westbury Park, Bishopston and St Andrews, Henleaze is also attractive for family house rentals, says Charlotte Strang of property finders Strang & Co. “But the yields are not as good as in an area like Easton, where purchase prices are much lower.”
For property investors
Buy to let (BTL) is not dead, according to Charlotte Strang, who sources properties for investments, student landlords and lets to professionals.
“For flats, I would recommend investing in a two-bedroom property with some sort of outdoor space like a balcony. These tend to rent better than one-bedroom flats. They’re also a safe investment for selling on. Many tenants like to use the second bedroom as an office.”
She says Bristol harbour’s Finzels Reach, Horizon (Cabot Circus) and Everard’s Printworks are schemes where initial yields of around 5pc can be achieved for the BTL investor.
In the Harbourside, flats in developments such as such as The General, Anchorage and Hope Quay are particularly sought after. “A two-bed apartment with views of the harbour rents for around £1,700 per month.”
For student lets, Ashley Down area is popular for its proximity to the University of the West of England and Bristol University. A four-bedroom terraced house costs around £600,000, and can be let to students for around £3,300 per month, giving an initial yield of around 6.6pc.
Regeneration areas
Investment opportunities include the Temple Quarter area, surrounding Bristol Temple Meads Station – an area of around 130 hectares, considered to be one of the UK’s largest urban regeneration projects. Another one to watch is Bristol Zoo – there are plans for 196 new homes under consultation.
New residential neighbourhoods slightly further outside the city include the Brabazon development in Filton, a large regeneration area on the former airfield which will benefit from a new railway station linking Filton with Temple Meads in under 15 minutes.
Prices start from £194,000 for a one-bedroom flat, through Savills.
“Filton is an attractive place for professionals to live, particularly as some of the large employers such as Airbus are based there,” adds Ms Strang. Chinese and Hong Kong buyers especially prize Filton’s easy access via the M4 and M5, and proximity to Bristol airport.