Yesterday's cut in the Bank of England base rate - to the lowest level since 1951 - means that high interest rates may no longer be the threat that they once were to the housing market. It is hoped that the cut of one percentage point will bring confidence, as well as cheaper repayments, to millions of borrowers. However, for anyone seeking a new mortgage deal there is now an even bigger danger on the horizon than the rising cost of borrowing: the “down-valuation”.

Estate agents, mortgage brokers and homeowners say that an increasing number of creditworthy borrowers who originally put down big deposits are being refused deals on remortgages because of much lower-than-expected valuations. These experts are blaming ultracautiousness among banks and building societies, which are nervous about lending money secured against a depreciating asset, for the growing problem.

House prices have fallen by 16.1 per cent in the year to November, according to the latest figures from Halifax. However, some homeowners are reporting valuations almost 20 per cent lower than the price that they paid for their home months before the market peaked in 2007. The valuations, these owners argue, do not take account of the rise in the value of property before prices began falling.

Melanie Bien, director of Savills Private Finance, the mortgage broker, says: “Surveyors are being ultracautious and there is evidence that they are down-valuing property by far more than national indices or even local experience would suggest is warranted. There is a lot of caution around and fears that if the surveyor gets it wrong the lender will pursue them for redress.”

Surveyors, who are employed by mortgage lenders, stand accused of putting more downward pressure on house prices by being over-cautious. Lenders have tried to sue valuers in the past for overvaluing homes before they subsequently fell significantly in value. “Valuers got caught out in the early Nineties when lenders tried to sue them,” says Peter Bolton-King, chief executive of the National Association of Estate Agents: “This time, as prices have fallen so quickly, they are wary of it happening again.”

The problem has arisen because lenders are more worried that, should they have to repossess a home, they would not get all of their money back. Banks work out how much to lend based on the proportion of borrowings against the value of the property - the loan-to-value (LTV) limit. This ratio, as high as 125 per cent in the boom, has fallen significantly for the best deals as lenders seek to protect themselves from future losses.

For a homeowner selling a property, a down-valuation spells trouble because it means that the buyer could reduce the price they are willing to pay at the last minute based on the new valuation. If the seller does not agree to the new price, the sale could fall through. Borrowers who are remortgaging are finding that the price put on their home by their prospective lender's valuer is far lower than they had expected after researching the average price in their local area. Consequently they may be priced out of competitive deals from other lenders and may face more expensive repayments on their existing lender's standard variable rate (SVR).

“It means that borrowers are increasingly struggling to refinance,” Bien says. “A rising number are going on to their lender's 'go to' rate or standard variable rate at the end of their fixed or discounted term, not only to take advantage of falling interest rates and no fees and early repayment charges but also to avoid a down-valuation.”

For borrowers such as Claire McDonald a down-valuation will come as a big shock. When she came to the end of her existing deal she applied for a new loan with Abbey but was forced to stay with Northern Rock, her current lender, on its higher SVR. The valuer, instructed by Abbey, said that her three-bedroom London home, bought for £323,000 in January 2007, was worth £275,000. Abbey refused to offer her the loan that she had originally applied for, which required a deposit worth at least 25 per cent.

“It's a completely unrealistic valuation, especially as a house on the same estate with two beds (we have three) and a small garden (we have 70ft) has just sold for £325,000,” McDonald says. “It makes it virtually impossible for us to get a mortgage with them as they also expect us to have a 25 per cent deposit - which we would have, almost, if they gave us a realistic valuation.”

Surveyors admit that, with so few properties on the market, assessing the correct value of a property is becoming harder. One of the most important factors when valuing a home is the price that similar properties in the same area have sold for recently.

Barry Hall, a spokesman for the Royal Institution of Chartered Surveyors, says: “There are now fewer sales, so if a valuer is looking for comparable sale it is a tough job. The chances are that there will not be a similar property to hand. It makes it harder to read the market.”

Some surveyors also admit that the conservative approach of lenders is putting pressure on them to carry out full inspections. Previously, lenders were happy to accept automatic valuations, which in most cases do not require a surveyor to visit a property in person.

Richard Sexton, of e.surv, one of the biggest chartered surveyors in the UK, says: “Whereas in a rising market the bulk of valuations were carried out automatically without a surveyor viwing the property, now 70 per cent of valuations require a full inspection. Valuers now have to answer more searching questions by lenders and must double-check every last detail.”

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