In a declining house price environment, it’s not uncommon to come across stories of down valuations and in recent weeks, we have seen reports of properties being down valued by as much as 10-15%.
When this does happen, more often than not, the blame is placed at the surveyor’s door – with one adviser commenting recently that us surveyors are a ‘pessimistic bunch’ – no offence taken.
It’s important to remember that in many such instances, there is no distinction between valuations conducted through Automated Valuation Models (AVM), desktop valuations, or in-person surveyor visits.
We saw AVMs and desktop valuations increasingly used during lockdown and some lenders are still working in this way, especially for remortgage business. It is often in the area of remortgages where problems can arise around valuations, especially when borrowers are looking to stretch affordability.
Naturally, borrowers are looking to get the lowest rate possible. If a £10,000 increase in their property’s value is the difference between a 75% LTV product and an 80% LTV product, homeowners will always hope for the best when it comes to the valuation.
The last 12 months have witnessed a rapidly evolving property market, calling for surveyors to be one step ahead when it comes to the comparable data available and, as with anything, technology and more precisely – AVMs – do have their limitations.
Our own figures do not show an increase in down valuations; in fact, down valuations have been declining since the summer, with the average down valuation being less than £10,000.
Despite perceptions, surveyors aren’t necessarily a negative bunch, but in a market where declining house prices are a reality, down valuations can happen and advisers can help manage client expectations around this.
For sellers, at least, we are starting to see some realism return to the market. We hear it repeatedly, but it’s really important to ‘price right the first time.’
Rightmove’s September House Price Index showed that 36.3% of properties currently for sale had been reduced by an average of £22,700 – a 6.2% decrease – the highest level since 2011.
This compares to the five-year pre-pandemic average of 31.2% of properties, with an average reduction of 5.5% – suggesting some sellers are pricing rather optimistically.
Rightmove noted in its report that there have been signs of activity starting to pick up, with back-to-school sellers contributing to a 12% increase in the number of new properties coming to the market in the first week of September compared to the average weekly number throughout August.
While it is hoped the recent decreases in mortgage rates will begin to stimulate more buyer demand, we have yet to see this.
Yet, just as mortgage rates have caused the market to slow, once we see them fall more significantly, we are likely to see demand improve once again.
Hamptons’ figures show there were just 555,780 sales in the first seven months of this year, which is 128,730 (18%) fewer than in the same period in 2022 and 12% fewer than in the first seven months of 2019.
All the indicators point towards a slower market until the end of the year, with Hamptons predicting that for 2023, there will be just under one million home sales – the lowest number since 2012. Nevertheless, looking ahead, Hamptons expects completions to reach 1.1 million in 2024, 1.2 million in 2025, and 1.3 million in 2026.
So far this year, first-time buyers have played a significant role in the market, making up a record-breaking 28% of transactions – perhaps not surprising given average rents have exceeded £1,300.
Downsizers have also been an active group. Hamptons notes this type of buyer often has cash or considerable equity, enabling them to take advantage of a market slowdown, either paying off the remainder of their mortgage, freeing up equity, or helping their children and grandchildren onto the housing ladder.
While we are indeed in a bit of a temporary lull, there will still inevitably be sellers who believe their property holds greater value than the market is willing to pay.
Although house price declines have not reached the depths some initially projected, they are still lower, and advisers can assist clients in aligning their expectations.
Simon Jackson is managing director of SDL Surveying
