As property prices continue to fall and the market shrinks, more lenders are down valuing, throwing chains into chaos.
The Times
First-time buyer Clementine Hudson was initially thrilled when she managed to knock £65,000 off the £550,000 asking price of a one-bedroom flat in east London — a process that took six weeks of negotiation.
The 26-year-old was soon in for a nasty shock. Two weeks after her £485,000 offer was accepted by the reluctant seller at the start of May, her mortgage company, NatWest, threw her purchase into chaos by declaring that the flat was really only worth £460,000, limiting what it would lend to her. After weeks of further uncertainty, this enabled her to negotiate down the price by a further £10,000 - a 14 per cent fall from its original price.
Once vanishingly rare, down valuations like these are now occurring so frequently that mortgage brokers describe them as the norm in today’s shrinking property market, and they threaten to throw swathes of chains into chaos.
They are happening because lenders are worried that the accelerating rate of falling house prices — which analysts at Nationwide and Halifax say are now sinking with a rapidity not seen since the global financial crisis — might leave a growing number of borrowers at risk of negative equity, which is when their property’s value plummets beneath their mortgage balance. The price falls are being fuelled by the mortgage crisis, which is leaving would-be buyers unable to afford properties. This week the Resolution Foundation, a think tank, said that mortgage holders will have to pay an average of £3,000 more next year as they fix on to vastly higher interest rates than before, a combined financial blow of £17 billion.
In the case of Hudson’s mortgage, NatWest’s down valuation followed an inspection carried out by its surveying partner Legal & General. It meant that she faced being unable to get the £225,000 mortgage she had banked on for a property costing £485,000 and was likely to be promised less, in accordance with what NatWest’s surveyor believed to be the true value. This left her with a choice: to try to renegotiate the price down again with her seller, or stump up a bigger deposit in order to bridge the gap.
During a frantic few weeks she managed to renegotiate the price of the flat again, down to £475,000. Plus, much to her relief, NatWest eventually confirmed it would still honour her £225,000 mortgage. By the time the process was completed and she had exchanged, five months had elapsed since her first offer for the property.
“I had expected the sale to move quickly. The seller wasn’t in a chain and had moved abroad so the flat had been empty for six months, and I am a first-time buyer so I am not in a chain. But it was anything but,” Hudson says.
I’m so glad I stood my ground. Given how prices are dropping now, I’d be feeling a little foolish for jumping into it.”
For Hudson the down valuation is a relief because it ensured she wasn’t ripped off by the seller. She now believes he valued the flat, on the Isle of Dogs, in an inflated way appropriate for the Covid-boom era and not for a shrinking market.
For many buyers, however, the increasing tendency of banks to declare “computer says no” in this way are leading to purchases collapsing completely, along with the corresponding chains of buyers and sellers dependent on them.
Darryl Dhoffer, a broker based in Bedford and founder of the Mortgage Expert, says down valuations like this case “are becoming the norm”, particularly in areas in the south of the country at the centre of the pandemic-era property bubble.
He warned that the chances of successfully appealing a down valuation by your lender’s surveyor are slim at best. “You’re more likely to catch a brick in a cobweb,” he says.
“Getting an exchange over the line today is like walking a tightrope 50ft up while navigating an assault of doom-laden news, rising costs and indecision,” says Emma Fildes, a property buying agent who represented Hudson.
Until recently sellers held the power in much of the country as buyers flocked to their front doors in droves during a pandemic-era buying frenzy fuelled by Rishi Sunak’s stamp duty holiday.
Now a rapidly slowing market means they have far fewer options, and are even being dragged back to the table by buyers to renegotiate (often already reduced) prices after down valuations — something they would have regarded as unthinkable during the pandemic boom years. Often the maths doesn’t work for any of the parties.
Last year sellers would have laughed at you — in a rising market there is always someone behind you willing to pay more,” says Anna Mole, a buying agent at Oxford Property Consulting.
“But today higher mortgage rates have made buyer budgets more sensitive to downvaluations and sellers, with many fewer offers, are now more willing to negotiate.”
Henry Pryor, a buying agent, illustrates how attitudes are changing. He remembers one buyer early last year who agreed to press ahead and pay £1.3 million for a family house in Rickmansworth, Hertfordshire, despite being hit by a survey that found the roof needed work that would cost £45,000. “The seller had lived there for 40 years and was very embarrassed about the damage but refused to drop the price, saying they had a queue of other offers,” Pryor says.
If surveyors acting for banks are fussy now, they’re likely to be more so after the most recent property price data from Nationwide and Halifax, both released during the last week, which suggested falls were accelerating.
Nationwide found prices around the country are now an average of 5.3 per cent lower than they were this time a year ago as average mortgage rates are expected to trend well above 6 per cent for the next year and continue to deter would-be buyers. Halifax put the fall at 4.6 per cent.
The comparison site USwitch says the average two-year fixed-rate mortgage deal for a borrower with a 25 per cent deposit was still up at 6.65 per cent on Tuesday, a snail’s pace fall from the 6.75 per cent average from a week earlier and still hugely unaffordable for many.
Nationwide says a typical first-time buyer earning the average wage and armed with a 20 per cent deposit will now be paying more than 40 per cent of their takehome pay servicing their mortgage whereas, historically, that figure has been closer to 29 per cent.
Even though price falls are modest so far, given how much they went up during the pandemic, projections suggest they will continue to head downwards, although by how much is in significant dispute. Zoopla and Nationwide reckon a very modest 5 per cent this calendar year, while Capital Economics says 10.5 per cent from the market’s peak in August 2022 to the trough — potentially in the middle of next year. Charlie Lamdin, a YouTube personality and founder of the property comparison site BestAgent, is a noisy outlier with predictions of a 35 per cent peak-to-trough drop.
But while downvaluations and price reductions hamper many, the slowing down of the UK market is also being noted with relish by cash buyers in search of a bargain — particularly those from abroad. Fayyaz Malik, an American who recently retired as finance director at an electronics company in Silicon Valley, bought a flat in Nine Elms, southwest London, in July for £650,000 — £90,000 less than its asking price of £740,000.
We did feel that compared with others in the neighbourhood this may have been a little overpriced. We also wanted to test whether the UK property market had softened up a little bit, so we intentionally offered a lower price to see how motivated the sellers were.”
Another group of foreign buyers taking advantage of cut-price deals are affluent Hongkongers. Expats or emigrés now make up 10 per cent of all foreign landlords in Britain compared with just 5 per cent in 2020, according to figures released last month by the estate agency Hamptons.
But for ordinary young buyers whose hopes have been hit by the mortgage crisis, the prospects look bleak. One such buyer, Charlotte, is preparing to go back to the seller of the home in north London she agreed to buy for £700,000 in July, to persuade her to reduce her price by £50,000 after her mortgage company refused to offer the rate they had offered her in March. “My hunch is they’ll put it back on the market and if no one else comes in they’ll come back to me in a few weeks,” she says.
The slowing market
As the number of down valuations grows, statistics show that the property market is slowing down sharply.
An analysis by Hamptons from its database shows the number of days from the point a mortgaged offer is accepted to the keys being handed over is increasing across Britain, rising from 100 in April to 123 last month. Even transactions involving those without mortgages are slowing, from an average of 87 days in April to 111 today.
Transactions took significantly longer in August 2022 when the market was at its peak (126 days for mortgaged buyers to get from accepted offer to completion and 109 for cash buyers) and even longer than this during the pandemic (160 for mortgaged buyers and 154 for cash in July 2020).
However, Aneisha Beveridge, director of research at Hamptons, says that these slowdowns were being caused by other factors — during the pandemic it was the unprecedented surge of buyers entering the market to take advantage of the stamp duty tax holiday and gumming up the system. Meanwhile, she says that a year ago the market was being held up by a shortage of solicitors.
“We think [the earlier peak] was predominantly due to a lack of conveyancing capacity, but this time we think they’re rising due to more complicated chains and wider uncertainty about the market,” Beveridge explains.
Broken down by region, transactions in the the East Midlands take the longest in Britain (134 days from offer agreed to completion for mortgaged and cash buyers combined), followed by the East (132 days), Yorkshire and the Humber (131), West Midlands and North West (126), South West and Wales (119), the South East (114), London (112) and North East (111). Transaction times in Scotland are markedly shorter (64 days) because of the streamlined rules by which property is bought and sold there.
Offers north of the border are made by solicitors, not estate agents, after a “blind bidding system” in which buyers give sealed bids in a single day and are transparent about when they can move. After an offer is accepted, homes are taken off the market straight away, making gazumping and gazundering highly unlikely.
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