No one wants to deal with a down valuation. Homebuyers were beset by them in early 2024[1], as surveyors embraced caution in an uncertain market.
But of course, it’s not only the residential market that can be affected by this. Commercial down valuations are, unfortunately, a fairly common occurrence in the current economy.
“This isn’t too surprising when you factor in the changes we’ve seen – working from home, the rise of online shopping etc,” explained Jemima Hayes, one of our underwriting team leaders here at Market Financial Solutions.
“I’ve come across a few commercial down valuations recently. Offices are particularly prone to this.
“They always raise challenges, for both us and the borrower, but that doesn’t mean we can’t find a way forward.”
Jemima explained that commercial investors can often be blindsided by the difference between what they think their properties are worth, and what they actually end up being priced at. This is especially true for larger investments/projects, such as shopping centres.
Fortunately, borrowers investing in these types of assets tend to be fairly experienced, and they can use that experience to their advantage.
“If I’m working with a portfolio investor, I’d take a second look at their other assets. We could see if we could raise funding on other assets they owned.
“This could keep the investment afloat, allowing us to focus on the exit strategy.”
Olivia Cheeseman, another specialist underwriter here at Market Financial Solutions, agreed that this would be the best way forward for a borrower in these circumstances, however there may be other options for some borrowers.
“What needs to be remembered is that the right solution – always – will be dependant on the individual borrower’s circumstances,” she said.
“Still, in this kind of case, if we’re working with a low LTV of say 65%, we may be able to explore 2nd charge options to keep the deal going.”
Olivia reiterated; this would only be explored where it would be appropriate for the borrower’s situation. We’d need to carefully go through the terms to ensure this could work.
“The exit will need to be locked in too,” she added.
“If the exit involves a sale, I’d need to see evidence. If refinancing is involved, I want to see agreements in place.”
Ultimately, our underwriters’ job is to find a way to deliver funding for our borrowers in the most stable, secure way possible. We know the market can throw out nasty surprises, which is why we have many back up options available.
[1] https://www.thisismoney.co.uk/money/mortgageshome/article-13123401/Homeowners-hit-valuations-cause-mortgage-headaches.html
