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Lenders use mortgage valuations to assess the value of a property in relation to the loan amount. But it can be difficult to know the difference between a mortgage valuation and a house survey. Read on to find out why mortgage valuations are essential for you as a landlord, and how to make sure it doesn’t affect your mortgage progress.

What is a mortgage valuation? 

Lenders use a mortgage valuation to determine whether a property is worth enough to cover a loan should the lender need to repossess the property. It can also be useful to borrowers, as the valuation will confirm whether the property is worth what you are planning to purchase it for on your application.

With buy to let properties, the valuation will also confirm whether the predicted rent rate is appropriate and will satisfy the affordability calculations on the mortgage.

How does a mortgage valuation work? 

Typically, you’d think of a mortgage valuation as a visit from a property surveyor to put together a report for your lender. On most occasions, this is true, especially for complex properties such as HMOs or flats above commercial. However, with access to a wealth of information online, some lenders will turn to recent sales data in order to value properties. In some cases, they may simply drive past the property just to check the exterior condition. The data used may include average sales prices and rental rates of similar properties in the same area for the lender to get a clear idea of the local market.

The type of valuation conducted on your property depends on the lender and the circumstances. As each application and property is different, it will come down to how your lender views risk. Anything that may impact your property’s resale, such as its construction, the type of property, or non-standard building materials, may factor into a lender’s decision to come out to view it. Alternatively, a lack of sufficient sales data online or a lender not having previously offered on properties in an area may mean that a surveyor needs to visit in person to provide a full report.

Generally speaking, lenders offering free valuations will not visit the property. This is usually the case with high-street lenders, as they have access to a plethora of information online. Ultimately, this helps them keep their costs down!

Whichever valuation type the lender carries out, the report’s outcome ultimately comes down to the surveyor’s professional opinion. The loan size a lender will be willing to offer will depend upon their assessment of the property value.

What happens during a property valuation if the surveyor visits the property?

In-person mortgage valuations are usually relatively brief, taking approximately 15-30 minutes. In this time, the surveyor will walk around the property, look for any issues that may impact its value, and confirm any concerns or details for the lender.

Following the visit, the surveyor will assess the property’s market value by looking at similar property sales transactions in the area, taking into account local market supply and demand.

How do online and drive-by valuations work?

If a lender is comfortable that the loan won’t come with much risk, they are more likely to perform an online or drive-by valuation. Online valuations look at local sales data for the area, using an automated system based on local house price data and analysis. Drive-by valuations are typically a final check for lenders when they feel they have sufficient information about a property to decide on the loan. Surveyors will look at the exterior of a property, and sometimes not even park up.

Difference between a mortgage valuation and a house survey 

Mortgage valuations and house surveys serve different purposes.

Mortgage valuations are used as an assessment for your lender, and as the buyer, you may never even see the report.

House surveys or home buyer’s reports are there to alert you of any potential risks or problems with a property before you buy and should be used to indicate whether a property is in a good condition to purchase. A full structural survey doesn’t include a mortgage valuation and will cost a separate fee.

What does a mortgage valuation cost? 

According to the Money Advice Service, a mortgage valuation can cost anywhere between £150 and £1,500. The pricing is typically related to the type and size of the property, but some lenders may try to draw customers in by offering these for free.

What is a ‘down valuation’?

If a surveyor’s report concludes that your property price on the mortgage application is higher than its actual market value, you have received a ‘down valuation’. A common cause for down valuations is house prices becoming out of sync with market trends.

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

The best course of action to take if you receive a down valuation is to try and negotiate the property price with the seller. Local sales data alongside the surveyor’s report should help you do so, and there’s a strong chance that other professionals in the market will agree with your lender’s new valuation. It may be that your seller is eager to get through to completion, and therefore accept a lower offer.

You may try to challenge the valuation; however, it’s up to the lender to decide whether they will accept or not. You must have strong evidence that the property is worth the original amount you claimed for, as without this or a successful appeal, your only remaining option is to make up the shortfall on the loan. Of course, this option will not be viable for the majority of borrowers, meaning that down valuations often lead to dropped mortgage applications.

How can I avoid a down valuation?

Down valuations are added stress to the mortgage application. They can also slow the process down, putting the whole purchase chain at risk. Here are a few ways that you can avoid a down valuation:

  • Research the value of the property in advance

Have a look at local sales data for the past six months or so. This will give you an idea of what you can expect to get for your property, or if you’re paying the right amount for your purchase.

  • Get an expert opinion

Having local estate agents view the property to give you a suggested value will help avoid a down valuation. Their experience and knowledge of the local market will help guide you to an appropriate listing price for your property.

  • Speak to your lender

If remortgaging, you can speak with your lender to determine the value they currently have for your property as a guide.

  • Offer the right amount

Researching local sales data will really help to avoid a down valuation. If you’re looking at purchasing a property, but notice it’s listed £50,000 over what similar homes are selling for locally, then a lower offer is more than reasonable. It could save you from a down valuation, and some money.

  • Speak to a broker

Speak to an expert

If you would like to discuss your mortgage options get in touch with one of our expert mortgage brokers by calling 0345 3456788 or request a call back here. 

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