An increasing number of mortgage lenders are downvaluing their mortgage offers, a sign that the rampant housing market may be taking a turn.
Homebuyers are being left struggling to pay the full price of the property’s they’ve agreed to purchase as more and more lenders are finding the value of a property to be lower than the agreed price once assessed by a surveyor.
The number of transactions being delayed due to downvaluations is on the rise and has reportedly tripled in some areas. Adam Kingswood of Kingswood Residential Investment Management said the share of sales experiencing downvaluation has increased from 5% to 15% since the start of the pandemic. He commented:
“A lot of lenders are apprehensive that we are at the peak of the curve.”
Martin Stewart of mortgage broker London Money said:
“I think we will start seeing more downvaluations because there is a thing called gravity. We have crossed the Rubicon between sellers’ expectations and the realistic valuations of the lender.”
Chris Sykes of Private Finance, also a broker, said:
“Downvaluations have cropped up in the past few months. That is uncommon in a buoyant market.”
Sykes added that most of the cases of downvaluation have been in and around London. One example was a house in Kent that was downvalued from £380,000 to £340,000 – a drop of over 10%.
One explanation is that a shortage of homes on the market has led to buyers making extreme offers, with Rightmove commenting that March’s unprecedented price level was “being stoked by the greatest imbalance between buyer demand and the number of properties available for sale that we have ever measured at this time of year”.
They said that this year saw the strongest spring sellers’ market ever recorded by their analysis metrics. The Rightmove March House Price Index reported an average monthly rise that was the largest seen since March 2004, pushing the annual rate of increase to 10.4%, with all regions and countries except London and Scotland up over 10% annually. The annual rate of 10.4% was the highest that Rightmove has recorded in any month since June 2014.
It is, however, predicted that house prices will begin to fall next year following further growth in 2022. The Centre for Economics & Business Research (CEBR) forecasts 4.8% growth for 2022, though it predicts a 2% fall in 2023, up from the previous estimate of a 0.6% fall due to the cost of living crisis. Increasing cases of downvaluation are perhaps an early sign of such a slowdown. Karl Thompson from the CEBR said:
“Higher inflation will lead to bigger falls in house prices. Downvaluations are red flags we are reaching some kind of turning point in the market.”
