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Falling UK property prices are preventing millions of property investors and private home owners from obtaining cheaper mortgages from lenders as surveyors knock thousands off property prices during valuation appraisals.

A down-valuation by a surveyor acting on behalf of a mortgage lender can potentially wipe out thousands of pounds worth of equity at remortgage, leaving property owners flat broke and desperate.

When property investors decide to release equity or even switch lenders for a better mortgage deal, the bank or building society arranges a surveyor to give a new valuation on the property to check it’s worth enough to borrow against.

But UK residential property prices have fallen at a rapid pace over the last 3 years, slumping by 2.6% in the last 12 months, according to Nationwide’s residential house price index.

In some parts of the UK, such as the North-East, the property valuation slump has hammered property values by nearly 10% over the past year.

These down valuations by surveyors on behalf of lenders do little for the perceived equity in properties, creating problems for anyone trying to re- mortgage with very little equity left in the property.

For example – A couple took out a £180,000 residential mortgage on a £200,000 property with a 10% deposit in 2010.
Attempting to remortgage, the surveyor informs the lender that the property now only values £185,000 and £175,000 is still outstanding on the mortgage after two years.
The equity was 10% at purchase but now stands at just 5%.

The reduced equity in the property means that the couple would be pushed towards more expensive home loans, or face transferring to their lender’s Standard Variable Rate (SVR), which could be much higher than a fixed or variable rate mortgage deal.

Adding to property owners worries are the increasingly tight lending criteria set by mortgage lenders, making it harder for the average man in the street to secure a good mortgage deal.

Property valuations tend to be extra cautious in a slow property market, similar to how the UK property market is behaving, and occasionally property vendors can be overly optimistic about the true value of their properties.

Many property buyers, especially investors, will always question whether the property valuation is accurate, and will then set out to see what can be done about it.

Some mortgage lenders sometimes use automated or drive-by valuations to determine property prices in certain areas, property purchasers are advised to find comparable properties within the same area and direct the surveyor to consider those similar properties before reaching a valuation appraisal.

Property investors often choose to cite properties sold in the same geographical area at higher prices in an attempt to secure higher mortgage lending. Information can be sought from local estate agents for recent sale prices and this can be used as supporting evidence.

Once a good mortgage deal ends, borrowers are forced on to the mortgage lender’s more expensive SVR, unless they can switch to another deal or to another mortgage lender.

Halifax, Bank of Ireland, the Co-operative and Yorkshire and Clydesdale banks have all raised their SVRs to between 3.99% and 4.95%. West Bromwich Building Society charges 5.84%, almost 12 times the Bank of England (BoE) base rate.

Buy-To-Let landlords, property investors and home owners are advised to search for the best mortgage deal available, whatever the amount of deposit required, as there are hopes that the Government’s new Funding For Lending scheme, designed to boost mortgage lending to households and businesses, will mean cheaper mortgages for all across the UK.

Over the longer term, making improvements to the property may help increase its value and boost the chances of getting a good mortgage deal. Alternatively, property owners can always try to switch to another mortgage lender in the hope that the valuation will be higher, provided that they can meet the lenders strict criteria, but there are no guarantees.

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