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Mortgage valuations explained

Find out how a mortgage valuation works, what valuations cost, how they differ from house surveys and what to do if you're given a ‘down valuation’.

In this article
What is a mortgage valuation? How do mortgage valuations work? Mortgage valuations vs house surveys How much does a mortgage valuation cost? What happens after a mortgage valuation?
Why does a down valuation matter to your mortgage? How common are down valuations? Why do down valuations happen? What do I do if my property has been down-valued? How do I avoid a down valuation?

What is a mortgage valuation?

When you apply for a mortgage, your lender will carry out a mortgage valuation or ‘valuation survey’ to check the property is worth what you’re planning to pay for it.

A mortgage lender may also want to carry out a valuation if you’re applying to remortgage, to check the property is worth what you’ve stated on the application. 

A mortgage valuation is for the benefit of the lender. Its scope is limited and it only provides information for your bank to understand whether the property will act as viable security for the loan you've asked for. 

However, a mortgage valuation can also give you a rough idea of whether you're potentially paying too much or too little for a property.  

How do mortgage valuations work?

Lenders conduct property valuations in a number of different ways.

Traditionally, a surveyor would usually have visited your property to compile a short report. However, these days surveyors are increasingly opting to value properties using recent sales data online and, if required, driving past the property. 

It's hard to predict which type of survey your property will be subject to.

According to the Royal Institute of Chartered Surveyors (Rics), the type of survey you get is driven by the lender's risk appetite. 

This might be based on the type and construction of the property and whether there's anything that may cause an issue with lending.

For example, if the property you're planning to buy is made of a non-standard material such as concrete, the lender is more likely to instruct a surveyor to go and visit it. 

The decision to do a physical visit could also be because a lender hasn't lent in the area before or it can't find enough information about the property online.

With more lenders now offering free valuations, it's increasingly likely you won't get a surveyor visit. High street lenders in particular have a wealth of information available to them online, which can help them assess the suitability of a property for mortgage purposes - and this helps keep costs down.

Regardless of the way the valuation is conducted, the lender will use the surveyor's professional opinion on the value of the property to make its final decision on what size of loan it will offer you.

 

What happens when a surveyor visits the property?

 

The surveyor will take about 15-30 minutes to look around the property for any obvious defects that could impact its value and confirm key details for the lender. 

After the visit, the surveyor will make an assessment of what the ‘market value’ of the property is. This is done by looking at three sales transactions of similar types of properties in the local area and also the professional’s knowledge of the local market, including supply and demand.

The surveyor may also provide the mortgage lender with a ‘minimum reinstatement value’, which is the amount you would need to rebuild the property from the ground up – useful when getting suitable buildings insurance cover later on in the home-buying process.

 

How do desk-based and drive-by valuations work?

 

If a mortgage lender doesn't think the loan would involve much risk, it may opt for a desk-based or drive-by valuation, or a hybrid of the two.

A desk-based valuation involves analysis of local house price data (using the Land Registry or another house price index) and using an algorithm to provide an automated valuation.

A drive-by valuation involves exactly what it sounds like: the surveyor will drive past the property, maybe parking and taking a look at the exterior, but without entering the building.

This might happen when a surveyor believes they've got enough information about the property already to make an informed judgement, but they just want to do a final check on its general condition.

The surveyor may also provide the mortgage lender with a ‘minimum reinstatement value’ which is the amount you would need to rebuild the property from the ground up – useful when getting suitable buildings insurance cover later on in the home buying process.

Mortgage valuations vs house surveys

A mortgage valuation is not the same as a house survey and you should never rely on one to confirm whether the property is in good enough condition to buy.

It’s a brief visit for the benefit of the lender, and often doesn't involve anyone stepping inside the property. 

In fact, even if you pay for the mortgage valuation you might not ever see the valuation report or find out what the surveyor has told the lender.

A home buyer's report or full structural survey is much more rigorous and can alert you to potential defects or other problems with a property before you buy.

Just bear in mind that a full structural survey doesn’t include a mortgage valuation. Some home buyer reports do come with a valuation but you should double check the survey is acceptable to your lender or you could end up paying for two.

How much does a mortgage valuation cost?

A mortgage valuation can cost between £150 and £1,500 according to the Money Advice Service, although some lenders try to entice new customers by offering one for free.

The cost of a mortgage valuation is usually based on the price of the property. 

What happens after a mortgage valuation?

After a mortgage valuation, the surveyor will give their opinion on the value of the property to your mortgage lender.

If the surveyor agrees with the sale or remortgaging price your lender is likely to offer you the loan you’ve requested.

But if the surveyor suggests the price is higher than the property is really worth you might get a ‘down valuation'.

Frustratingly, this could lead to your bank giving you a revised mortgage offer, which might scupper the whole purchase or remortgage.

Why does a down valuation matter to your mortgage?

A down valuation occurs when a surveyor decides a property is worth less than the agreed sale price, or proposed remortgage value.

For example, let’s say you want to buy a £250,000 property and have a £25,000 deposit. You’ll need a mortgage for 90% of the purchase price - that's £225,000.

But if the lender’s surveyor decides the property is actually worth £200,000, it can throw all your careful calculations out of sync.   

That’s because if the lender offers 90% of the valuation price, you'll only be offered £180,000 rather than the £225,000 you need to secure the property.

Your deposit plus £180,000 would only give you £205,000, leaving you with a £45,000 shortfall – which for many could ruin the entire deal. 

 

How common are down valuations?

In 2018, online estate agent Emoov reported that as many as one in five homes in the UK were being down-valued by lenders, up from one in 20 in 2016.

We asked the major lenders to reveal how many down valuations they have received from their surveyors this year but all declined to comment as they considered this commercially sensitive information.

However, the Royal Institution of Chartered Surveyors (Rics) says that talk of down valuations happening more frequently is a myth, and defended the role of surveyors in a blog post.

It says surveyors have a duty to produce an accurate valuation that they can back up, as they can be sued for overvaluing properties by lenders.

Why do down valuations happen?

Down valuations usually happen when house prices are out of sync with current market trends. 

If house prices are falling at a faster rate than they are in other areas, or transaction levels aren’t what they once were, there can be a gap between what estate agents and sellers believe a property is worth and the surveyor's opinion of its market value.

What do I do if my property has been down-valued?

If you receive a down valuation on the property you want to buy, the first thing to do is try and renegotiate the sale price with the seller.

A down valuation is a strong bargaining tool. If your lender doesn't think the property is worth what you had agreed to pay, chances are others will agree – meaning your seller could struggle to get more money from another buyer. Depending on their situation, they may also be keen to push the sale through even if it does mean less money.

If the seller doesn’t budge or you're remortgaging a property you already own, you may be able to challenge the valuation if you have robust evidence that the property is worth the amount you said it was. However, accepting a challenge on the valuation is at the discretion of the lender.

If you don't have any evidence that disproves the lender's valuation, you could potentially accept the new loan offer and try to make up the shortfall another way. This won’t be a realistic option for most though – so your last resort might be to try an alternative lender that uses a different independent surveyor, which may give a valuation closer to the sale price. 

It's worth asking an independent mortgage broker for advice on this.

How do I avoid a down valuation?

Down valuations can put a tremendous amount of strain on the already stressful process of buying a home or remortgaging. 

To avoid receiving a down valuation as a seller or buyer there are some things you can do.

1. Research the property’s value 

It’s important to research the value of the property you’re hoping to buy or sell. Look at how much properties in the area have actually sold for over the past three to six months so that you get an idea for what a realistic price should be.

2. Get an expert opinion 

If you’re selling, you should invite three local estate agents who have recently sold properties similar to yours to value your home. They can take a look at the property, offer insight into local market activity and use recent experiences they’ve had with similar properties to give you a suggested price. 

It’s likely you’ll end up with three different figures from the three different agents, but don’t just go with the highest sale price. A good rule of thumb is to go with the middle valuation or calculate an average. 

3. Check with your lender 

If you’re hoping to sell your home, it’s possible to check what property value your existing lender has on file. This can help guide your decision on how much to put your property on the market for. 

4. Make a realistic offer 

If you’re a buyer you should use your research to make a realistic offer on a property. So if the property is on sale for £500,000 but you’ve seen similar properties sell for £425,000 in the area, don’t be afraid to offer under the asking price – it could save you a lot of trouble later on. 

5) Find the right mortgage provider 

If you’re going for an unusual or risky property, such as a flat above a shop, it’s worth seeking out a provider that specialises in this. 

A whole-of-market mortgage broker should have access to every available mortgage deal so it can recommend suitable lenders for your financial circumstances and the type of property you’re after. 

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