My Buy to Let properties are being undervalued?

Dear Alex

Myself and my colleagues value investment property, and owner occupier property, every day under the RICS guidance. Banks do not request valuations to be understated. They may ask for a valuation with limited marketing (sometimes wrongly called a forced sale) and this may lead to a lower value but this would depend on the type of property; more unusual properties can be hard to shift even in a good market.

Banks' generic instructions for investment properties tend to request analysis of the rental market as well as for sales. Most straightforward houses appeal to both sectors; HMO's can be a bit specialist in terms of prospective buyers.

The banks that my firm works with expect a good valuation methodology setting out how the value was arrived at, the specific factors and comparable evidence. We would usually reference the "tone of the market" especially where evidence is limited or we feel the market is moving one way or the other and evidence has no yet caught up. The valuer ought to be able to explain this.

Properties for sale are not considered to be comparable evidence; they may help judge the tone of the market but asking prices have to be treated with caution.

Although the cost of the valuation is usually passed on to the borrower the valuation is for the bank; the valuer's duty of care is to the bank, not the borrower (save in limited circumstances as per case law). The valuer is effectively assessing risk on behalf of the bank. Bear in mind that when it goes pear shaped banks get very upset and PI insurance is expensive.

From valuations I have done personally the vast majority are in line with the borrower's expectations. Some are wildly under but usually for good reason which the borrowers come to understand and appreciate (e.g. lack of clarity on access, services, etc.).

The RICS issued immediate post Brexit guidance but this has been withdrawn and they now favour valuers making individual decisions rather than applying a blanket caveat. Evidence of price falls is not really there yet, apart from the south east which has been declining slowly for some months - not connected to Brexit. Valuers relying on Brexit to down value may be missing the point unless there is good reason.

I suggest that anyone who feels their property has been undervalued should ask for the methodology and comparables which support the valuation figures. Any valuer worth their salt should have this on their file, although it should be in the report in the first place.

Hope this helps.

I remortgaged one last year - the break point between rates was dependent on the LTV and of course it was valued so as to just place it the wrong side of the line, giving a higher LTV and me a higher interest rate. They (Yorkshire Bank) had me over a barrel of course having paid the survey fee.

Reply to the comment left by "Graham Bowcock" at "16/08/2016 - 13:25":

Good explanation, thank you.

http://www.nabarro.com/insight/briefings/2013/march/permissible-margins-and-contributory-negligence-valuers-and-lenders-battle-it-out/

for a standard residential property, the margin of error may be as low as +/- five per cent;
for a one-off property, the margin of error will usually be +/- 10 per cent; and
if there are exceptional features of the property, the margin of error could be +/- 15 per cent, or more.

Covering behinds me thinks but do remember that to sell a BTL with tenants having plenty of time left on the original tenancy, reduces your market to investors only thus limiting buyers

Reply to the comment left by "Gunga Din" at "16/08/2016 - 13:26":

I think a survey fee and the chance of another, better long term rate negates the loss of the fee surely?

Reply to the comment left by "Graham Bowcock" at "16/08/2016 - 13:25":

I generally (having been through three recessions) believe that prices are falling everywhere because they are too high - nothing to do with Brexit. C.London market fell 18 months ago by at least 10% because it was over inflated.

It is frustrating though. 10 years ago I had the property valued at 85k got a mortgage for around 74k now with the latest valuation I can only get a mortgage for 54k so having to put money in.

I feel your pain Alex. A couple of months before 'Brexit' I had a tenanted property valued for remortgage purposes. There were a few like for like properties that had sold for around £175k in the previous 3 months. I had just spent over £3k refurbishing the property ready for the remortgage. Not only did the value come down significantly - £150k - but the rental value was low as well. Valued at £600pcm when properties in the area are bringing in over £700pcm, and this property was itself bringing in £650pcm. My broker sent emails and made phone calls seeking an explanation from the valuer, but got no response. This meant I ended up having to pay £16k more than I thought I would in order to get the remortgage through.

Same experience here. Property valued at 10k less than I paid and I'm now stuck on a standard variable rate at 4.99%! I need 3k to achieve an 80% LTV and I'm reluctant to put in any more money just for the Conservatives to screw me into the ground with tax and now falling house prices!

Maybe lenders are front running S24 etc. under which 80% and 75% LTV is very unlikely to work and they (the lenders) don't want to be party to the fall out from that.