Lenders rein in runaway house prices: soaring valuations
Home sales have stalled across the country as a surge in lower valuations pours cold water on the scorching real estate market.
For nearly two years, house prices have soared, with the average home now worth £286,079 – up 10.8% in the last 12 months alone, according to Halifax.
Strong demand from buyers looking for more space, coupled with a shortage of supply, has sparked bidding wars, pushing bids well above asking prices.
Overheated market: Strong demand from buyers looking for more space coupled with a shortage of supply sparked bidding wars, pushing offers well above asking prices
But brokers say they are now seeing lenders apply the brakes and increasingly write down homes by tens of thousands of pounds.
This means that banks and building societies do not believe a property is worth the agreed price, so reduce the amount they are willing to lend.
If buyers can’t get the mortgage they want, they’ll have to negotiate a cheaper price with the seller or find the extra money to fill the gap.
If neither is possible and another lender does not offer a larger mortgage, it can lead to the collapse of entire chains.
Experts warn this could be the first indication that the post-pandemic property boom is coming to an end.
Emma Jones, broker and owner of Alder Rose Mortgage Services, says around a fifth of her clients are now being told their property is worth less than the asking price.
“We’ve seen about twice as many valuation declines in the last few months than before,” she says.
“It suggests that lenders are more cautious. And that’s something we see across the board and with vacation rentals as well.
The bank said the house was worth £35,000 less than our offer
Maria Ivanova’s dream home has been valued at £35,000
Maria Ivanova was desperate to find a bigger home for her family of three. She and her 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, said: ‘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 reduced the value of the property to £420,000.
Fortunately, after some negotiation, the sellers 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 appraisal was so much lower than the asking price.
“If the sellers hadn’t accepted a lower offer, we probably would have walked away.”
House price growth slowed last month, rising at a rate of 1.1% compared to 1.5% between February and March, according to the most recent figures from Halifax.
And analysts at Capital Economics predict prices will fall 3% next year.
Rising reports of falling valuations support the trend, experts say.
Dominik Lipnicki, director of Your Mortgage Decisions, said: “It is human nature for appraisers to be more cautious if they know there has been such a long period of rising house prices.
“If this is not a blip, but a general trend, it could be a sign that house price growth is about to slow.”
Over the past two years, Wales has been the region with the most recorded declines in value, according to research by property buying specialists HBB Solutions.
And that suggests that declines in value occurred in 63% of all transactions.
Unrealistic prices: Brokers say they now see lenders applying the brakes and increasingly slashing home values 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, said buyers should secure substantial deposits before bidding on homes in popular coastal towns because it is difficult to negotiate prices down.
She says: ‘It’s not unusual for bids of £600,000 to be downgraded by £50,000 as bidding wars lead to overbids.’
“And the competition is so fierce for some properties that sellers know they can find another buyer willing to pay the price.”
“A client of ours who was buying a property with stunning sea views had it undervalued by £45,000.
“Fortunately I had warned them this was likely to be the case and they had a large enough cash deposit to cover the difference.
“This is a major issue for many people buying property in Wales and it is causing chains to collapse.”
Kate Burns, founder of KB Mortgage Services in Huddersfield, says she has also seen falling valuations rise over the past two months.
One of his clients won a £300,000 offer for a four-bedroom end-of-terrace house in Halifax, but the lender said he believed it was worth just £270,000.
“At the moment the buyer is trying to negotiate the price to £287,500.
“They currently have a 2.29% mortgage with a 15% deposit – but if they need to borrow more they will have to pay a higher rate of 2.5%.”
Buyers with small deposits usually pay much higher interest rates. Mortgage rates are still relatively low by historical standards, but have increased slightly.
The average two-year fixed-rate mortgage now costs 3.03%, down from 2.57% this time last year, according to data analysts Moneyfacts.
Last week, the Bank of England’s base rate rose to 1% – the fourth consecutive rise in five months – which will further drive up the cost of borrowing.
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