Page last updated at 04:40 GMT, Saturday, 8 August 2009 05:40 UK

Undervaluing 'hitting home sales'

Estate agent window
Mortgage lenders commission surveys to check a property's value

Property sales and remortgage deals are collapsing because some mortgage lenders and surveyors are deliberately undervaluing homes, estate agents say.

Properties are typically being undervalued by at least 10%, said the National Association of Estate Agents.

It said surveyors afraid of being sued by lenders were being overcautious.

But the Royal Institution of Chartered Surveyors denied the claim, saying the housing market was constantly changing and had lots of "imperfections".

Mortgage lenders, such as banks, routinely commission surveys to ensure the price agreed for a sale reflects the property's current value.

'Insurance fear'

If the valuation placed on the property by the lender is lower than the agreed price, the lender may choose to offer a smaller mortgage, leaving the buyer without enough money to cover the asking price and causing the deal to collapse.

Lenders may also check the value of a property when it is being remortgaged to ensure they are not lending more than it is worth.

If a property is repossessed and the lender is forced to sell below its purchase price, it can sue the original valuer for negligence.

They are perhaps worried about their professional indemnity insurance
Peter Bolton King
National Association of Estate Agents

This occurred regularly during the housing slump of the early 1990s and, the NAEA said, as a result of the uncertainty in today's market, valuers are once again "frightened".

Chief executive Peter Bolton King told the BBC: "They are perhaps worried about their professional indemnity insurance - they are thinking back to the 90s when surveyors were being sued by lenders for allegedly not getting the valuations right.

"They are perhaps worrying about the market and almost deliberatively knocking off 10% almost regardless of what the property sold for.

"The other reason, which I found more worrying, is that we are hearing anecdotally that lenders are giving specific instructions to their valuers as to how they should approach these valuations."

'Duty bound'

Sellers are also affected by undervaluing as they may have to drop prices and those seeking remortgages are left with little or no flexibility.

One homeowner, Theresa Timms, told the BBC she had had problems remortgaging her home in Bridgend.

"The bank sent their own valuer who valued it at £80,000, but I knew it was worth far more so I paid £300 to get it revalued," she said.

"The valuer came and said it was worth £100,000, but it was the same person that made the first valuation."

There will be a range of valuations that the valuer will look at before they arrive at their opinion of value
Barry Hall, Royal Institution of Chartered Surveyors

Andrew Frankish, managing director of independent broker Mortgage Talk, said: "With the mortgages that are not completing, we believe up to half of them are affected by the valuation.

"What we mean by that is the valuation is coming back at lower than they predicted, which pushes them into a higher loan to value, which means the products are too expensive or the banks are reluctant to lend in that market at all.

"This is even worse in remortgages where around three-quarters of remortgages are affected."

The Council of Mortgage Lenders said it works with professionals who are duty bound to give accurate valuations.

Those who value homes also deny any deliberate undervaluing.

Barry Hall, from the Royal Institution of Chartered Surveyors, said: "We are dealing with a market where there are lots of imperfections and there will be a range of valuations that the valuer will look at before they arrive at their opinion of value.

"That opinion of value could well be different from another opinion of value and could fluctuate over a period of time as well."

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