Under-valuation – Comfort-station?

Chucky Bread

What is a deposit for? What makes a credit-worthy customer? When is a deposit, not a deposit? When it’s an under-valuation!

About us
Ok, so my wife and I have been renting for over 10 years now and we are into our 30s. We live in what some people might call ‘the regions’, so house prices have not been rising over the past 5 years (has it really been that long since the cooper buckling sub-prime saga started?).

Over the past 5 years we have been seriously saving hard for a deposit to buy our first house. However, as we are into our 30s, we’re not looking for that first time buyer house reminiscent of the era when the notion of ‘getting onto the ladder’ started in your early twenties. We want a house for life or at least for 5 to 10 years and do the family thing, of course.

So after getting married on a shoe-string last year (£3k, its possible!), we’ve been continuing to frugally manage our finances and have been in a position to lay down a 10% deposit (£20k) on the (2nd) house of our dreams.

Finding a house…
Let me assure you, finding it was not an easy task! Sifting through houses listed, re-listed and re-listed again with un-realistic prices is tiring. Going through the process of buying our 1st perfect house to find out it’s not mortgage-able is tiring.

Getting back on the horse, booking appointments for houses is tiring. Finding out that someone else has beaten you to a viewing on the one and only decent fresh house in the month is tiring. Getting a valuation however, shouldn’t be tiring. But it is, and it gets worse.

The under-valuation curve-ball
We’ve just been undervalued by £25k on a £215k house. Seriously, if the property sold for £190k then the buyer would be getting a bargain and the seller would be both a fool and in some considerable rush to sell.

The valuation should be a true reflection of the house value at this point in time. I get the distinct impression the valuation is being used as a tool to buffer a house deposit and to reflect the worst case scenario of a continued slow house price contraction.

Roll-up / roll-up
We’ve challenged the valuation, but I wonder whether any one else has been undervalued on their purchase property? Is this something first time buyers often experience? Is it because Yorkshire Building Society like to offer a really attractive first time buyer deals only to appear as good corporate citizens, when actually completing the purchase (and getting the £1000 cash-back) is almost as possible as winning the lottery jackpot? Could it also be to do with the valuation company used?

If my fears are true and this is happening to a number of people out there, it could well in part explain why bank lending is going down and there are frustrated buyers and sellers out there.

AAA / 11 out of 10 / One million per-cent
As a requirement to get a mortgage today you pretty much have to have a significant multi-person income demonstrable over a long period of time, a superlative credit history, a large value of ready cash as a deposit, undertake affordability checks and show willing with life, salary and illness protection. Yet this appears to be not enough. Is seems the under-valuation hurdle has been added as additional bank security: Advertise a 10% deposit, but sneakily after the valuation we’ll in effect double it to 20% and not even allow the additional 10% to pay off the loan amount and reduce the interest. And don’t for one minute think you can get an over-valuation to reduce your deposit burden: it only works one-way with the banks (and building societies)!

The particularly annoying this is, suppose for one minute you cannot continue to pay your mortgage: the bank/building society will take and sell your house, if there is a shortfall it comes out of your substantial deposit. Any further shortfall will be taken out of your assets: cash, car or any other possessions.

Pushing water uphill: it’s all so tiring.