How to value your home when in a trust deed

5th September 2011

If you’re a homeowner in Scotland worried about debt, the subject of how much your home is worth may be of great importance to you. When using insolvency procedures such as a Scottish trust deed or sequestration (which is also known as bankruptcy) the value of assets will need to be paid over to help repay creditors. An example of such an asset will be any equity in your home; a figure calculated by subtracting your mortgage (and any other debts secured on your home) from the value of the property.

Most people do not have an up to date valuation for their home. The trust deed advisers at Trust-Deed.co.uk speak with many enquirers who find it difficult to use the limited information that they have to estimate what their home is worth. This is a vital piece of information for many as the answer will determine whether a Scottish trust deed (or bankruptcy) is viable without risking the loss of their home. Where substantial equity exists in a home other (non-insolvency) measures such as the Debt Arrangement Scheme or a debt management plan may be alternatives that would not directly jeopardise the home.

The first point we’d like to make is that at the current time of writing there is a substantial reality gap between what people hope to sell their properties for and what buyers are actually prepared to pay. Rightmove (the property website) reports that asking prices in the UK are typically 14% higher than selling prices. Many people look to similar homes near them which are on the market when trying to work out what their home is worth. However, the asking price for such homes may well be much higher than the property will realistically sell for. This may explain why so many homes have been on the market for months or even years without being sold.

The second point we’d like to propose is that Scottish house prices are falling quickly at the time of writing. According to Lloyds TSB Scotland house prices in Scotland have fallen 3.7% in the last three months. On average this means that house prices in Scotland are approximately the same as they were in early 2007. This may provide a clue to current values that will be helpful to anyone who received a valuation to purchase or remortgage their property in early 2007.

A final point to consider is that the valuations that are used for a trust deed will be based on the assumption that the property needs to be sold pretty quickly. That means that recent average valuation reductions and the asking/selling price mismatch should be factored into a trust deed valuation.

The conclusion therefore is that most people are a little surprised by trust deed or bankruptcy valuations which come in a little lower than they had expected (and in some cases feared). Low valuations mean less (or no) equity which in the case of a trust deed or bankruptcy will be good news for anyone who wants to keep their existing home.

Those wanting to further clarify the value of their home may wish, in advance of going ahead with a trust deed, to ask a couple of local estate agents to put a “quick-sale” value on their home. This will provide a clue to a possible trust deed valuation. To be additionally certain of the position many trust deed providers will offer a free “desktop” valuation in advance of signing the trust deed to estimate whether equity is likely to exist. It’s even possible to arrange a full valuation before the trust deed with a valuing company recommended by the trust deed provider so that the position is 100% certain though this is likely to cost an amount in the order of £100 to £200. Where the situation with equity is marginal many may consider this cost justified in terms of their peace of mind.

If you are currently trying determine the best source of debt management for you then please make use of our resources. Whether you call our trust deed advice line or contribute to our forum is up to you, as long as you receive the trust deed advice you need.

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