Downside valuations have doubled since the pandemic – Forbes Advisor UK

June 14: Supply squeeze doubles mortgage rejections ‘down’

The number of mortgage applications rejected because a lender thought a property was not worth the amount the applicant wanted to borrow has doubled since the Covid-19 pandemic.

“Downside appraisals”, when there is a discrepancy between the agreed selling price of a property and the appraisal made on behalf of a mortgage lender, can cause serious problems with mortgage applications.

For example, a borrower may agree a sale price of £350,000 with a landlord, only to find that his mortgage lender values ​​the property at just £300,000 and rejects his request.

With demand outstripping supply in the housing market, buyers are increasingly willing to pay more for properties, leading to rising valuations on the downside, according to online mortgage broker Mojo Mortgages.

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“Sellers try their luck”

His research shows the rate of decline in valuations was 12.8% in April, down from 10.4% a year earlier and double its mid-pandemic rate of 6.4% in December 2020.

Downward mortgage valuations were higher in April, at 15.4%.

Richard Hayes, Co-Founder and Managing Director of Mojo Mortgages, said: “The real estate market has seen unprecedented demand over the past two years, with month after month of record price increases.

“This level of demand means that, in my opinion, some sellers take a chance and set a sale price higher than that recommended by real estate agents. With some properties, like three-bedroom homes, in such high demand, sellers are trying to see what they can achieve.

“With the supply of new homes on the market still well below demand, buyers are also willing to pay more for a property due to the lack of similar alternatives.”

Dealing with a decline in value

Buyers faced with falling appraisals may be able to renegotiate the selling price with sellers, especially if the sellers themselves are looking for a new property and rely on the sale to fund their next purchase.

Some lenders also allow appeals on downgrading decisions, but require solid evidence of the sale prices of other properties in the same area in order to change their decision.

Additionally, an assessment may have been conducted remotely by someone in their office. It can be helpful to request an in-person assessment to reassess anything you think they might have missed.

Each lender handles appraisals differently. It is possible that a different lender, using a different surveyor, will return an appraisal closer to your agreed selling price.

Or if you are able to increase your deposit, you could close the gap between the lender’s appraisal and the selling price.

Alternatively, you can talk to your lender about a higher loan-to-value (LTV) ratio, which is the amount you want to borrow compared to the value of the property. Be aware, however, that higher LTVs generally mean higher interest rates and more expensive monthly repayments.

Figures from Halifax earlier this week showed average house prices rose 10.5% in the year to May, to £289,099. Prices rose 1% from April, marking the 11th consecutive month of rising prices, partly caused by the imbalance of supply and demand in the housing market.

April 27: First Direct launches its first 95% mortgage

First Direct has launched its first-ever 95% loan-to-value (LTV) mortgage for first-time buyers and movers.

Borrowers with a 5% deposit can choose between a two-year or five-year fixed rate, priced at 2.79% and 2.94% respectively. Both options are free. The deal is available on loans of up to £550,000, meaning buyers can borrow up to £522,500 if they have a deposit of £27,500.

It is not available for mortgages.

Free mortgage advice

Trussle is a Trustpilot 5-star rated online mortgage advisor who can help you find the right mortgage – and do all the hard work with the lender to secure it. *Your home can be repossessed if you don’t continue to pay your mortgage.

First tier boost

With the added aim of alleviating affordability constraints, First Direct’s 95% mortgage is available with a repayment term of up to 40 years. However, it also allows unlimited overpayments that can be made at any time, allowing borrowers to essentially reduce this term without penalty.

Chris Pitt, Managing Director of First Direct, said: “As the property market continues to accelerate into the fast lane, first-time buyers have been left behind. As property prices continue to outpace deposits, we see this as a viable way to help people move up the ladder. »

Mortgages also come with an agreement in principle (AIP) of six months, compared to the industry average of two to three months.

What other lenders offer 95% mortgages?

There are currently 56 mortgages available at 95% LTV, according to online mortgage broker Trussle. This is a huge improvement from 2020, as deals all but disappeared from the market during the pandemic due to affordability concerns.

In March 2021, the government launched a new mortgage guarantee scheme to encourage lenders to start offering high mortgages again.

Lenders that offer 95% LTV mortgages include Barclays, Santander, HSBC, NatWest, Skipton Building Society and Clydesdale Bank.

How do First Direct offers compare?

First Direct’s offers compare well to other 95% deals which, due to higher loan risk, come with higher rates than mortgages with lower LTVs.

Barclays has a two-year fixed-rate mortgage priced at 2.67% no charge – a bit cheaper than First Direct’s two-year deal at 2.79%. However, under the government’s mortgage guarantee scheme, Barclays’ offer comes with associated restrictions, such as it cannot be used to buy new homes.

HSBC, the parent bank of First Direct, offers the choice of a two-year fixed rate of 2.69% with a fee of £999, or the equivalent of 2.79% no charge, while the Newcastle Building Society charges £3 .15% free and £500 cashback.

For five-year 95% fixed rate mortgages, Barclays offers the same rate as First Direct’s 2.94%, while HSBC’s offer is slightly higher at 2.99%. Both offers are also free.

However, all transactions except First Direct limit overpayments without penalty to 10% per annum.

For up-to-date mortgage rates, enter your criteria in our mortgage tables below.

Choose an offer

It’s important to take all considerations into account when choosing a mortgage, including charges over face rate, bonds, and prepayment charges.

Also look at the tracking rate, which is what the deal will revert to at the end of the term. That said, many homeowners are looking to remortgage at another rate after their initial fixed rate period is over.

A toll-free independent mortgage broker, such as our partner Trussle, will work out the numbers on your behalf and advise you on the best deals for your situation.

Amanda Aumonier, Head of Mortgage Operations at Trussle, said: “High loan-to-value mortgages can play a crucial role in ensuring the market remains accessible to everyone, by significantly reducing the size of deposits needed to secure a home. . We hope this trend will continue so that everyone can aspire to own their own home.

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