Mortgage valuations are standard procedure when buying property, but their purpose can be confusing and will often cause buyers to question aspects of the process. Today’s post aims to answer those queries for you.
Let’s dive straight in, shall we?
What is a mortgage valuation?
Sometimes referred to as a valuation survey, mortgage valuations are essentially conducted solely for the benefit of your lender. The reasoning behind mortgage valuations is simple: lenders want to ensure the money they lend is going towards a solid investment, one that will provide them with the security they require to justify the loan.
As their name suggests, mortgage valuations help lenders ascertain whether or not the price being asked for the property is correct, but the extent of the survey is limited.
What’s the difference between a mortgage valuation and a house survey?
To follow on from above, mortgage valuations differ from house surveys because of their limited scope and the reason why they are being conducted. To reiterate, mortgage valuations are for the benefit of the lender…even though you may, in some instances, have to pay for the valuation yourself.
House surveys, on the other hand, are conducted for the benefit of the buyer. Unlike mortgage valuations, home buyer's reports and full structural surveys are more in depth and will uncover defects that may be missed by a valuation survey.
In short, a house survey will provide peace of mind to buyers over the condition of the property, while mortgage valuations help lenders make a decision on the validity of the loan amount requested.
Do you need both a mortgage valuation and a house survey?
In most cases, you’ll need both. As we’ve already seen, mortgage valuations and house surveys differ considerably, and buyers shouldn’t proceed purely on the outcome of the former.
That being said, there are instances where a home buyer’s report will include a valuation as well. There is, however, a catch - many lenders won’t accept them. So, it’s worth checking the small print. This is especially important if the inclusion of a valuation in the home buyer’s report incurs an additional fee.
For help on selecting the right survey for your property purchase, check out our post on the different types of house surveys available.
How are mortgage valuations conducted?
Your lender will instruct a surveyor to carry out the mortgage valuation, which may or may not be carried out in person. Whether or not the surveyor will actually visit the property is hard to predict and will be determined by a number of factors, which can vary considerably between lenders.
So called ‘drive-by valuations’ are becoming more and more commonplace, and some mortgage valuations won’t even require that. Desk-based valuations are not unheard of, and they are conducted by analysing a combination of data points, including Land Registry and local house price statistics held by the lender themselves.
These figures are fed into an Automated Valuation Model (AVM) (which is basically an algorithm built for the task) to provide the surveyor with a valuation of the property in question.
By avoiding visiting properties in person, surveyors are able to lower the fees they charge lenders. This cost-cutting allows lenders to offer free mortgage valuations as an enticement to prospective clients, so there are benefits to all concerned.
What is surveyed during a mortgage valuation?
If your lender insists upon a physical inspection of the property by the surveyor, you might be wondering what exactly they are going to look at. We’ve already discovered that the scope of these valuations is limited, so what might be flagged?
Here are a few things that may be noted:
- Potential risk of damage from nearby trees
- External cladding
- Suspicion of structural movement
- Unclear lease terms
- If the surveyor suspects the property is concrete built
What does a mortgage valuation tell you?
As the buyer, very little. We’ve already covered the fact that mortgage valuations are really for the lender to ascertain whether or not there is suitable security to back up the loan amount requested, so don’t expect too much information about the property to flow back to you.
In fact, in some instances, you won’t even see the final report. The surveyor will inform your lender of their findings, but you may well be left in the dark…even if you paid for the valuation to be carried out.
Will I be charged for a mortgage valuation?
Speaking of paying for a mortgage valuation, how common is it for lenders to charge for something that benefits them but brings little actual value to you, the buyer?
If you’ve read every word to this point, you’ve probably picked up on the fact that many lenders are now offering mortgage valuations free of charge in order to win your business. However, this isn’t always the case.
According to moneyhelper.org.uk (the government-backed financial guidance provider), the valuation fee can vary from £250 to £1,500. This will be dependent on the value of the property being surveyed.
What happens once the mortgage valuation has been conducted?
Once the surveyor has carried out the mortgage valuation they will then report back to the lender with their findings. If the valuation matches the loan amount requested, the lender will make a decision on whether or not they are going to grant you a mortgage offer. In most cases, this will almost be a formality.
For those whose valuation falls short of the asking price, you may receive what is known as a ‘down valuation’. We’ll go into more detail on down valuations in a bit.
How long does a mortgage valuation take to come back?
Mortgage valuations are usually straightforward, so you can expect to hear back within a fortnight in most cases.
Does a completed mortgage valuation mean your offer will be automatically approved?
Not necessarily. Lenders will conduct other checks, too, and they could scupper your chances of receiving a mortgage offer, even if the valuation comes back from the surveyor with the correct property value.
What happens if the mortgage valuation doesn’t align with the purchase price?
As we touched upon above, if the mortgage valuation is lower than the asking price this could result in a down valuation.
For sellers, a down valuation could result in a lost sale and take them back to square one. Even the best case scenario for sellers on the receiving end of a down valuation isn’t all that great, as they will likely have to accept less than their asking price for the sale to continue.
You might expect buyers to be in a contrasting position, but it isn’t as straightforward as that. Down valuations may result in a cheaper purchase, but not always. Remember, the seller is under no obligation to negotiate and they may flat out refuse to match the mortgage valuation, leaving you back at square one as well.
Equally, your lender isn’t going to offer more than the mortgage valuation prices the property at, so you could be left with a situation where the only way to proceed is to find the difference in cash. Naturally, this isn’t a viable option for most buyers, so the purchase falls through.
Are down valuations common?
Frustratingly, down valuations seem to be on the increase. The word ‘seem’ is of importance here, though, as obtaining solid figures from lenders is all but impossible as they deem such information as commercially sensitive and are unwilling to share accurate data on the subject.
It is important to bear in mind what we discussed at the beginning of this post: mortgage valuations are for the benefit of the lender, not the buyer. So, if the surveyor feels that the property is overpriced, it is their duty to report such findings accurately.
Setting the asking price, however, is somewhat different. Estate agents will do their best to provide realistic estimations to sellers, but they will be working with different criteria than that of a surveyor.
Remember, too, that agents are under pressure from clients - the vendors - to secure the best price they can, and market appraisals can sometimes result in asking prices that differ from the view of a surveyor. Equally, agents are also obligated to follow the vendors instruction, which can result in an aspirational asking price being set rather than a realistic one.
Regardless of which side of the buyer/seller fence you are on, Petty Son and Prestwich can help you get to where you want to be. We have been in the property industry for over a century, providing a service with a customer-first ethos to buyers, sellers, landlords, and tenants across East London and West Essex.
So, if you’re looking to buy or sell in or around the capital, get in touch. Our friendly sales staff are on hand to help you make your move.