House sales are stalling across the country as a surge of down-valuations pours cold water on the red-hot property market.
For almost two years, house prices have been storming upwards, with the average home now worth £286,079 — up 10.8 per cent in the past 12 months alone, according to Halifax.
High demand among buyers seeking more space, coupled with a shortage of supply, has sparked bidding wars, pushing offers far above asking prices.
But brokers say they are now seeing lenders apply the brakes and increasingly down-value homes by tens of thousands of pounds.
The average home has risen in price by £29,000 in the last year to a new record of £267,620
This means banks and building societies do not believe a property is worth the price agreed so reduce the amount they are willing to lend.
If buyers cannot secure the mortgage they want, they will need to negotiate a cheaper price with the seller or stump up the extra cash to bridge the gap.
If neither is possible, and another lender will not offer a larger mortgage, it can cause entire chains to collapse.
Experts warn that this could be the first indication the post-pandemic property boom is coming to an end.
Emma Jones, broker and owner of Alder Rose Mortgage Services, claims around a fifth of her clients are now being told their property is worth less than the asking price.
‘We have seen around twice as many down-valuations in the past few months as we were previously,’ she says.
‘It suggests lenders are being more cautious. And it is something we are seeing across the board and with holiday lets as well.’
The bank said our new home was worth £35,000 less than our offer
Maria Ivanova’s dream home was down valued by £35,000
Maria Ivanova was desperate to find a larger home for her family of three. She and husband Pawel Szweda, 43, owned a two-bedroom flat in Greenwich, London, where they lived with their daughter, Julia, seven.
In February, they found a three-bedroom detached house in Bexleyheath with an asking price of between £440,000 and £460,000.
Maria, 33, who runs a pub, says: ‘We were told there were at least two other viewers interested in the house, so we made an offer of £455,000 two days later.’
However, their lender down- valued the property to £420,000.
Fortunately, after some negotiation, the vendors agreed to accept £427,000 — and Maria and Pawel were able to pay the extra £7,000.
Maria says: ‘I was shocked when I found out the valuation was so much lower than the asking price.
‘Had the vendors not agreed to a lower offer, we probably would have walked away.’
House price growth slowed last month, rising at a rate of 1.1 per cent compared to 1.5 per cent between February and March, according to Halifax’s most recent figures.
And analysts Capital Economics predict that prices will fall by 3 per cent next year.
Increasing reports of down-valuations support the trend, say experts.
Dominik Lipnicki, director at Your Mortgage Decisions, says: ‘It is human nature that valuers may be more cautious if they know there has been such a long period of house price rises.
‘If this is not a blip, but a general trend, then it could be a sign that property price growth is about to slow down.’
Over the past two years, Wales has been the region with the most down-valuations recorded, according to research by property purchasing specialists HBB Solutions.
And it suggests down-valuations occurred in 63 per cent of all transactions.
Unrealistic prices: Brokers say they are now seeing lenders apply the brakes and increasingly down value homes by tens of thousands of pounds
Carol Peett, managing director of buying agency West Wales Property Finders and who has worked in the area for 18 years, says buyers should secure hefty deposits before bidding for houses in popular coastal towns because it is difficult to negotiate down prices.
She says: ‘It is not unusual for £600,000 offers to be down-valued by £50,000 as bidding wars lead to excess offers.
‘And competition is so fierce for some properties that vendors know they will be able to find another buyer willing to pay the price.
‘One of our clients who was buying a property with a magnificent sea view had it down-valued by £45,000.
‘Fortunately, I had warned them that this was likely to be the case and they had a large enough cash deposit to cover the difference.
‘This is a major, major hiccup for a lot of people buying properties in Wales and it is causing chains to collapse.’
Kate Burns, founder of KB Mortgage Services in Huddersfield, says she has also seen an increase in down-valuations in the past two months.
One of her clients had a £300,000 offer accepted on a four-bedroom, end-of-terrace house in Halifax, but the lender said it believed it was worth only £270,000.
‘At the moment, the buyer is trying to negotiate the price down to £287,500.
‘They currently have a 2.29 per cent mortgage with a 15 per cent deposit — but if they need to borrow more, they will be charged a higher 2.5 per cent rate.’
Buyers with smaller deposits typically pay much higher interest rates. Mortgage rates are still relatively low by historic standards, but have been edging up.
The average two-year fixed-rate mortgage now costs 3.03 per cent, up from 2.57 per cent this time last year, according to data analysts Moneyfacts.
The Bank of England base rate last week rose to 1 per cent — the fourth consecutive hike in five months — which will push up the cost of borrowing even further.