Halifax Hikes Mortgage Cost by Undervaluing Properties
It has become known lately that one of the largest British mortgage lenders – Halifax – undervalues properties despite the fact that the most recent reports demonstrate rise in house prices.
A 4% increase in house prices is even reflected in the index compiled by the bank itself – the Halifax house price index. A 7.8% rise was reported in Nationwide’s Index.
Yet, Halifax is said to under-price the properties by as much as 35%, which fact is inevitably reflected in the cost of mortgage. A large number of UK mortgage brokers have already reported undervaluation by Halifax, which is, by the way, owned by the Lloyds Banking Group. Not only this under-pricing policy increases the cost of mortgage borrowing, it also prevents borrowers from qualifying for bank’s best mortgage deals.
For instance, at Halifax, a borrower with 10% equity is generally charged as much as 6.19% in mortgage interest rate for a 5-year fixed mortgage deals. However, if the borrower had realised that they actually have 40% equity, they’d certainly turn to HSBC, which offers a record-low mortgage interest rate of 4.95%.
It is worth noting that Halifax imposes the practice of under-valuation even of industry professionals. For example, Mr. Simon Lord and his family had their house under-priced by as much as 25% by Halifax when trying to remortgage this July. It cost them a lot of nerves and £1,000 to get physical valuation from one of the Halifax’s surveyors, which resulted in a 35.6% higher house price.
UK mortgage brokers say they are shocked to see Halifax massively doing things like this, especially given the fact that Halifax claims to update its Index on a quarterly basis and to have a robust valuation process in place.
British mortgage brokers say that borrowers should be extremely careful when having their property priced because the right valuation determines the choice of available lenders.
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This is utter non-sense. Undervaluing a property by the lender means that the buyer’s deposit ratio increases and therefore they will be able to qualify for better deals. A very simple example: Say you’ve got £25,000 as deposit. If the true value of the property is £150,000 you will have 16.67% deposit. However if the bank undervalues it to say £100,000 then your deposit will be 25% which will qualify you for a much better deal.
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I woudl suggest they are taking a sensible valuation approach in a falling market. Most asking prices and estate agent “valuations” are still Alice in wonderland at bubble prices.
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“It has become known” (To whom?)… Halifax “is said” (By whom?) to under-price… “UK mortgage brokers” (Which ones? And why won’t they go on record?) claim to be shocked. I can’t help noticing that the article gives no credible source for these anonymous rumours. The only evidence provided is a single instance of undervaluation.
Unless the authors can provide some credible attribution for these rumours, I will be ignoring it as so much gossip, and advise others to do likewise.
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It has become known that unreliable rumour mills generally begin with the phrase “it has become known”.
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They overvalued them on the way up and now the same is happening on the way down. Prices will soon resume their correction, as borrowing cost, unemployment and taxes all rise through 2010/11.
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Perhaps they are taking a more cautious approach now as they already have had their fingers burned. They probably have their “own†property prices forecast and try to adjust (index) current prices to forecast figures in 2-3 years time as mortgages tend to be for periods longer than 1 year. All lenders follow their lending criteria and they need to be sure that they will recover their loan in case of repossession, so if house prices will continue to decline they may end up in a negative equity scenario unable to sell property at the desired price. However, I don’t agree with MrCool completely. It is possibly the case for a new house purchase, when house price is lower, but when we are talking about existing customers looking to remortgage, it is totally different. My friend has a house, which she purchased some years ago with a 15% deposit. Over the years it has appreciated in value, but taking into account the current market condition, it should be valued to at least what she paid for it in the first place. Just a few months ago she was trying to remortgage it, but the valuer has valued it so low, that she is now not able to remortgage it at all as it stands as per valuation on a verge of a negative equity. She is now on a variable rate, which is thankfully quite low at the minute, but she is not willing to try another lender and flush down a few hundred pounds on another valuation.
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Trust me .. I’nm in the business. Its the surveyors worried about their backsides being sued!
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The property I have just spent 5 months trying to buy has now fallen through, thanks to the dodgy practices of Halifax and their surveyors. Despite having my own survey done, which they totally disregarded and refused to accept, they undervalued the port-restoration value byt between 10-15%. Their surveyor also grossly distorted the truth in an e-mail to HBOS with regards habitability, making refernece to such things as ‘non-functioning heating system’, which in fact was a coal fire that just happened to have been unlit!!
In they end, they slapped a £20k retention on my offer, repayable upon me carrying out £25k worth of work – yeah, like I’m gonna accept THAT deal!! Despite e-mailing their CEO several times, they did not want to know…. I am extremely bitter and angry at the treatment I have suffered at their hands….
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