Average property prices in the UK have risen around 11% in the last 12 months (and an impressive 67% in the last 10 years) as we continue to see a discrepancy between the number of homes coming onto the market and the number of buyers wanting to purchase a new property. Indeed, the number of properties coming onto the market currently is still over 30% less than pre-pandemic figures.


Whilst this has led to many homes selling for well over asking price in particularly sought-after areas, we have also seen an increase in the number of properties being down valued, which is when your buyer’s mortgage provider places the value of your property at less than the price which the buyer had originally offered.


This may be down to asking prices and sold prices being out of step, thanks to the time it takes between the vendor accepting an offer on a property, the sale completing and then being registered with the Land Registry 3-4 months later, during which time the value of the property has generally increased. For example, the average UK asking price in February 2022 was £348,804, compared to an average sold price of £277,000 the same month.


However, there are also likely to be other factors at play. Namely, the current cost of living crisis.


The recent hike in shipping, manufacturing and oil and gas prices which has pushed energy bills sky high and the ongoing conflict in Ukraine has meant that we are seeing spikes in inflation that we haven’t seen since the early 1990s and a rise in everyday household goods and services. These price increases are likely to continue to rise throughout 2022, at a higher rate than wages, therefore increasing the cost of living in the UK even further.


Indeed, the rise in inflation has been forecasted to jump to nearly 10% before the end of 2022 and Chancellor Rishi Sunak has also confirmed that interest rates are likely to rise to around 2.5% in the next 12 months from their current rate of 1%. This, of course, will have a substantial impact on the amount homeowners are repaying on their mortgage loans.


As such, mortgage lenders are now being more scrupulous when it comes to calculating affordability for mortgage loans and we are also very likely to see a steep increase in mortgage rates in the coming months on par with those of the 1990s – to as much as 3.3% in 2022 and 3.6% in 2023 – which will have an impact on how much buyers can afford to pay and therefore offer for a new home. As we continue through this fiscal tight spot, house prices are predicted to fall by around 5% as a result by 2024.


So, if you plan to sell your home, how do you avoid being caught out by a down valuation?


First and foremost, make sure that you get an accurate valuation for your home before it goes on the market. Online valuation tools are great for providing an instant figure to base your initial estimates on and house price indexes from the likes of Halifax and Nationwide will also provide information on house price increases since you bought your property. You can then use this percentage increase as a good basis for working out how much your property may have increased in value since you bought it.


For a more accurate valuation though, you should always seek an in-person valuation from a number of different estate agents before you settle on an asking price. They will also be able to confirm what similar sized properties are selling for locally. If your property is tricky to value, particularly if you have undertaken a lot of modifications since you bought it, or it is unusual in design or build, it may also be helpful to seek the advice of a qualified surveyor.


If you really don’t want to be subject to a down valuation, always ensure that you have priced the property fairly in relation to the current market and the condition of your home and not based on figures provided by an estate agent eager to get your business.


As a buyer, if you mortgage lender has confirmed that the amount that they plan to loan you is less than the amount you have offered to pay for a property, you have several options.


You can either make up the difference yourself if you have the funds to do so, try to negotiate a higher loan-to-value mortgage, ask the vendor to accept a lower price, find a new mortgage provider or pull out of the sale. Of course, if you have already exchanged contracts then to pull out of the sale would mean that you lose your deposit, and the seller could even sue you for breaching the contract.


You can also appeal the valuation your mortgage lender has provided. However, this can take a lot of time, you will need to provide compelling evidence as to why the valuation is wrong and you are likely to be liable for the cost of an additional valuation inspection. Depending on where you are in the buying process, your vendor could also have found another buyer able to pay the higher figure in the meantime.