How should I deal with a down valuation?

Reply to the comment left by "Colin Childs" at "29/11/2013 - 17:36":

not correct. valuers are supposed to valuing on a vacant possession open market basis. the rent may limit the amount of advance if it is below lenders criteria, but it should not affect the valuation!

Joe, that's absolutely right. Surveyors have no interest in rates of return for BTL mortgages, we simply provide an open market value and a current market rent. The lenders set various criteria for lending based on the values provided.
For instance lenders will consider properties with a specified Loan to Value ratio which may be a wide range with the best interest rates at around 50% rising significantly in accordance with perceived risks if you want to borrow, say, 80%. The rates vary from lender to lender and are often based on past experience on their own mortgage book. In addition different regions pose different risks as do types of property.

Typically I normally assume that the lender will wish to see a rental level which covers a minimum of 125% of the monthly mortgage payment. In a rising market this may be a bit lower and in a falling market it may be higher at around 150%.

Great input from Nick Pope!!

As others have stated, once a valuer has reached a decision, it is virtually impossible to change their mind.

The old days of sending in 3 comparables to reverse the decision are long gone!

What I do think this story gives is a salutary lesson about exiting a bridging loan.

Many newbies are told to buy a property on bridging, refurb it, and then exit via a BTL mortgage.

Clearly, there is no guarantee that a valuer will value a property at what you need to exit a bridge or refinance.

There are some specialist refurbishment products with lenders that may be a bit more likely to be able to release equity once you have forced the appreciation:

I think the moral of the story is to understand that there are no guarantees on getting the valuation you need to release equity.

In the case in the original post, perhaps the Castle Trust product might be an alternative to get as this increased equity? Just a thought ....

Some of our investor clients have, in the past, bought several flats / apartments in the same block, but because of 'site exposure' criteria rules with each lender we have therefore needed to use different lenders for the same Client to enable a multi-purchase in the same block of flats.

Not all lenders use the same valuer ... and herein lies the problem because as we all know a 'valuation' is not a scientific equation but a very subjective decision made by the individual person who goes to value the property. On one such occasion, my Client was buying 6 flats in a block of 12, in east London (purchase prices, approx £250k each). Two lenders were required and on one day, two valuers were sent out. One went into one flat, the other went into the (identical) flat next door. The two reports showed .... a difference of £60k between the two.

No matter what we tried, the lower valuing fella would not budge citing all manner of 'professional' resources, qualifications etc. The Client had mixed feelings (was he buying one too expensive, or getting one too cheap?) but of course the vendors were just worried and anxious as this was a mix of sales for various reasons and too many issues already for them all.

This particular deal went through 'by negotiation' but it was a nightmare for a Broker to try and explain the bombastic attitude of the reports and the way there was no maneuvering on figures.

I know the cost of PI is an issue for valuers, but PI is not exclusive to just the valuers profession. All of us have to have PI in place so it is not in anyone's interest to 'get it wrong'. However we all do our very best, we all work for the duty of the Client and we look to process a case with as much due diligence at our fingertips as possible, so I acknowledge all of the sentiments above, and I also commend the Property118 property research tool which will hopefully help sellers to be more realistic on their pricing in the first place too.

Thanks for giving those examples Howard.

It just goes to prove that valuing a property is not an exact science and that this needs to be taken into account.

It causes me concern when I hear property gurus touting courses and strategies to buy a property BMV on bridging finance, do a basic refurb, then refinance or "flip" onto an end user.

A down valuation can cause huge problems on both counts and could leave newbies on expensive bridging finance with no exit.

Well I have had similar issues. I bought a large Victorian House and developed it into a 7 unit HMO with cash. The total cost of the property and refurb was £550K, it is fully let and we are getting £44K pa in gross rent - a yield of 8%. Having completed the development I wanted to mortgage it to use the cash elsewhere. I applied through a packager to the HMO specialist Kent Reliance, paid a valuation fee of over £1,000 and they sent a panel valuer from Connells. After accompanying him on the viewing and hearing all the right noises, I was shocked to see his valuation of £325K. When I complained to the packager, I was asked to provide some co parables - needless to say not many large HMOs in the area have been sold over the last few months! I complained to the lender and was told they would not try and influence the valuer's opinion. It's a racket - arse-covering all round - you pay your fee and have absolutely no recourse.

Reply to the comment left by "Nigel Fielden" at "04/12/2013 - 20:05":

One thing I recommend to people is, although it doesn't relate to the value of the property, I say to people, when you send valuation cheque, I recommend stapling it to the letter, or if you send credit card details, say in the letter:

'Please find enclosed £200 cheque for valuation fee stapled to this letter, Or ‘You have my credit card details for valuation fee for XXXXXXXX address Nottingham.

I do want to use my own solicitors-they are a big firm.

Should you need anything else, can you please ’ring’ me ASAP, because one of my main factors in my business is SPEED, being able to operate when the ’bargains’ come up, because as you may be aware, they are not always there, & all of a sudden, five at once, so I do like funds ready just in case.

If we get together, I would like to request my choice of payment date, if possible?

Also please do not instruct the valuer if you need anything else & also if you cannot give me the 75% LTV & rates discussed, the 1% over BOE for life etc.

Once you are happy, instruct the valuer ASAP.

PLEASE DO NOT CASH ANY MONIES UNLESS YOU ARE HAPPY TO PROCEED WITH THESE DEALS ON THE INFORMATION YOU HAVE OFF ME. IF YOU ARE GOING TO REFUSE ME FOR ANYTHING, PLEASE MAKE THEM DECISIONS BEFORE YOU CASH THE VALUATION CHEQUE.

I would also like you to contact me before instructing valuer as I would like to choose the valuer as long as they are on your panel, if you can get it the valuation stage ASAP please'.’

This not cashing monies is very important. Mark may put me wrong on this, but I see that many mates pay their £350 (sometimes) valuation cheque, house gets valued up ok, then the Bank refuses the applicant on something that could have been found out at the beginning.

I recently bought a 2 bed in the Milton Keynes area as a refurbishment and rental investment. The surveyor who attended down valued the property which was to my advantage but also stated that there was a serious damp problem.

We had terrible problems with the mortgage company trying to get the surveyor to tell us where the damp was so we could rectify it. They would talk to us despite my partner being the mortgage broker. The mortgage company initially insisted that we get a damp specialist company in but paying @ £400 for a survey (taken off any work!) was not an option so I stuck to my guns.

Instead I asked a surveyor that we sue to do a damp survey at a cost of £60 inc VAT and he identified that the DPC had been breached with some tiling. We sent this to the mortgage company and they then put a 100% retention on the property, despite having a conditional offer being issued some weeks before!

When Carole challenged this they very quickly changed their mind and the offer was issued. The ridiculous this is that we have told the mortgage company that the damp has been resolved and they are happy without inspection!

So perseverance is the order of the day, especially when they think they are going to lose more business

Good luck with it all

Reply to the comment left by "Joe Bloggs" at "28/11/2013 - 19:35":

Mortgage valuations have only been disclosed to purchasers after 1982, primarily as a result of the ruling in Yianni v Edwin Evans & Sons where a firm or surveyors was found negligent (for not finding subsidence) even though the buyer of the house had not seen the report - it was considered that the provision of a mortgage was sufficient for the buyer to believe that the house was ok. Subsequently building societies decided to give copies of valuations to applicants as there was no apparent protection for surveyors anyway. Despite this I do not believe that anyone has an absolute right to see the report, whether they paid for it or not.

In recent years lenders have changed and a number do not provide copies now or they only supply a part of the report and keep the information they need in house (Lloyds Banking Group and Woolwich for instance).
Secondary lenders also tend to keep reports to themselves but in my opinion this is to allow them to turn down an application for non specific reasons which may or may not relate to value.

In many cases today the mortgage application is packaged by a broker and I believe (and I am ready to be corrected) that they are not allowed to charge over £5 until a mortgage is completed and that they pay for the report, not the applicant.

So far as I k

Reply to the comment left by "Nick Pope" at "08/12/2013 - 09:57":

Is part of your post missing Nick? It seems to end mid sentence.

Since 2009 only a handful of brokers now fully package applications and organise valuations by the way.
.