Lenders slash thousands of pounds from value of homes

Property market panic as lenders slash thousands of pounds from value of homes, sparking fears a surge of buyers will pull out

  • Data shows the average asking price for a home soared to £323,530 in October 
  • Came as sellers cashed in on unprecedented demand during stamp duty holiday
  • But almost half now being told their property is worth less than they had asked 

Homeowners are having tens of thousands of pounds cut from the value of their properties by lenders.

The average asking price of a home soared to £323,530 in October as sellers cashed in on unprecedented demand during the stamp duty holiday.

But almost half are now being told their property is worth less than they had asked, according to estimates.

Deals are collapsing as a result, and there are fears of a surge in buyers pulling out of purchases next year.

A report by the mortgage comparison website Bankrate UK has found that up to 46 per cent of buyers have seen the value of their prospective properties drop since March.  (Stock image)

The proportion of deals falling through has grown from 17 per cent in July to 23 per cent in October, according to data firm TwentyCi.

Experts say the trend shows the housing market has become irrational and is ‘out of sync’ with the rest of the economy, which is in recession. 

The market has enjoyed a ‘mini-boom’ because of families seeking more space after lockdown and the removal of stamp duty for homes up to £500,000.

Dreams dashed after £16k cut

Hayley Fewster, 29, and Oliver Sharp, 32, saw their lender knock £16,000 off the value of their home

A couple saw their dream move collapse after a lender knocked £16,000 off the value of their home.

Hayley Fewster, 29, and Oliver Sharp, 32, agreed to sell the two-bedroom flat in Leigh-on-Sea, Essex, for £254,000.

But their buyer’s lender said the property was only worth £238,000.

The couple said if they accepted less than £250,000 they could not afford the three-bedroom home they wanted to buy in Hadleigh, Essex, for £370,000.

Their alternative was to find a lender who would provide a larger loan on their prospective property. 

NatWest agreed to loan them 85 per cent of its value but only Metro Bank would increase this to 90 per cent.

But their offer, a five-year fixed rate mortgage at 4 per cent interest, was £200 per month more expensive than NatWest’s.

The couple’s buyer faced the same problem so the deal collapsed. Miss Fewster, who works in PR, said: ‘It’s frustrating because we bought our flat four years ago for £230,000… Lenders aren’t really doing anything to help.’

But a struggle is now emerging between sellers egged on by eager estate agents and lenders wary of economic uncertainty. Agents have been accused of hyping the market so they earn bigger fees.

Disparities in valuations are forcing many buyers to find bigger deposits or walk away from their deals. 

Sam, 30, a software engineer, agreed to buy a semi-detached property in Billericay, Essex, for £450,000 in August, but his lender said it was only worth £400,000.

The seller refused to renegotiate, and Sam lost the property because he did not have the funds to increase his deposit to cover the cost of the devaluation. 

James Chisnall, director of City Finance Brokers, said the value of one property in Canary Wharf, east London, was cut by nearly 25 per cent from £595,000 to £455,000.

He said valuers are nervous banks will pursue them for costs if the homeowner defaults on their mortgage payments.

Up to 46 per cent of buyers have seen their prospective properties devalued since March, according to a report by Bankrate UK, a mortgage comparison website.

The value of 44 per cent of affected homes was reduced by between £5,000 and £10,000, while the value of just under a quarter was cut by between £10,000 and £20,000.

Buying agent Henry Pryor said he would expect the devaluation rate to be between 10-15 per cent in a normal market. 

‘The housing market is out of sync,’ he added. ‘It is not behaving rationally given that we are in the middle of a recession. Some valuers are being overly-cautious, but I would go with their view over that of an over-excited seller.’

Experts believe deals will go through while buyers still think they can beat the deadline of March 31 when the stamp duty holiday is due to end. 

But they fear more could collapse if buyers are forced to renegotiate next year.

A spokesman for UK Finance, the banking trade body, said lenders have a responsibility to ensure property values are ‘current and realistic’. 

He added: ‘Although the valuation is carried out for the lender, borrowers also benefit from a realistic valuation as it could help them avoid over-paying for the property they are buying.’

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