If you are applying for a mortgage to buy your new home, you need to know about the valuation survey your lender will conduct to check that the property is worth the price you’ve agreed.
The lender will require a mortgage valuation report before lending money to reduce the risk of a difference in the price paid and the actual value. Mortgage valuation reports also protect the buyer from overpaying for a property.
Borrowing costs move the housing market, and valuations matter most when the market is shifting. The lender is pricing its own risk, not following the headlines, so in a cautious market its surveyor may land below the price you have agreed.
Also, the cost-of-living crisis and high mortgage interest rates have resulted in increased mortgage arrears, so lenders are even more focused on managing risk by ensuring properties are accurately valued.
A mortgage valuation report is a check by your mortgage lender that your home is worth the amount you are paying to ensure it provides enough security for your loan. You may also need a mortgage valuation if you are looking to remortgage. The information is helpful to you as a buyer, but only in terms of the value of your property – it can in no way be a replacement for a professional building survey.
There are different types of mortgage valuations: in-person visits, drive-by and automated valuations. Your mortgage lender will assess the level of risk involved with the property to decide which type of valuation is necessary.
The traditional type of mortgage valuation involves an in-person visit from a surveyor. A RICS surveyor will visit the property and determine a valuation based on a list of factors, including whether there are any property defects.
The visit will usually last less than 30 minutes, and the surveyor will use their local market knowledge and expertise to determine a market value for the property, which they will provide to the lender.
The surveyor is working for the lender, not for you, so they are assessing what the property is worth and whether it is sound enough security for the loan. In a visit of roughly half an hour they will typically note:
Size, layout and the number of rooms, measured or estimated against the floor plan
Construction type, flagging anything non-standard such as timber frame, concrete panel or single-skin brickwork, which some lenders will not lend against
Visible condition and obvious defects: damp, rot, roof condition, and cracking that suggests structural movement
Tenure, and on a leasehold flat the years remaining on the lease, the ground rent and the service charge, any of which can affect what a lender will advance
Risks that affect saleability: Japanese knotweed, flood risk, a history of subsidence, or a position next to commercial premises
Extensions and alterations, and whether planning permission and building regulations sign-off appear to be in place
Location, including transport links, schools and the general standard of the street
Comparable sales, which usually carry the most weight of all: what similar properties nearby have actually sold for in recent months
Just as important is what they will not do. A mortgage valuation surveyor will not lift carpets, move furniture, test the heating or electrics, or look under floorboards. If you want that level of detail you need your own survey, which is covered below.
This type of valuation is usually required if the mortgage lender does not have much information about the property or if there is an unusual risk. For example, if the property is built from non-standard material. Another reason that the lender may decide to instruct an in-person visit is if they have not issued any previous mortgages for properties in the area.
For more straightforward valuations, the lender may decide whether an automated or drive-by valuation is sufficient. This saves the cost of paying a surveyor but is not always as accurate.
Automated valuations have been introduced as an alternative to in-person valuations, using a broad range of data to enable accurate valuations without the need to visit a property. The data used for the automated valuation includes Land Registry information, street view and satellite images, and property portal data for homes that have sold in the area.
A drive-by valuation is the middle ground between an in-person visit and an automated valuation. A lender may choose a drive-by valuation if they do not think an in-person valuation is required, but some information is missing that they need to make an accurate valuation. The drive-by will involve assessing the property from the outside and checking details such as the condition of the roof and walls.
Your lender’s decision on your loan will depend on the surveyor’s opinion of the property’s value. If they agree with the sale price, your lender will likely offer you the required loan.
The valuation sits after your offer is accepted and after you submit the full mortgage application, not before. The usual order is: agreement in principle, offer accepted on a property, full application submitted, lender instructs the valuation, surveyor reports back, formal mortgage offer issued.
Lenders normally instruct the valuation within a week or two of the application, and the report usually reaches them within about a week of the visit. If the lender is using an automated or drive-by valuation it can be the same day. You will not normally see the report itself, only the lender’s decision, though some lenders will share a copy on request.
No, they do not give you enough information on the property’s condition. A home buyer’s report or full structural house survey is needed to understand any possible problems with the property before you buy.
A mortgage valuation does not include the assessment level involved in a home buyer’s report or a full structural survey. A house survey is a property condition assessment that a homebuyer arranges to check whether there are any issues with the property.
There are three types of house survey:
RICS Home Survey – Level 1: The most basic and cheapest type of house survey and includes a traffic light report that rates the condition of different parts of the property.
RICS Home Survey – Level 2: More comprehensive, providing recommendations for further investigations.
RICS Home Survey – Level 3: Full structural survey recommended for older properties and buildings with unusual designs.
The type of survey required will be chosen by the buyer rather than the mortgage lender.
Mortgage valuations can cost anything between £400 and £1,500 depending on the property’s price, although some lenders offer them for free as a perk to new borrowers.
If the mortgage valuation surveyor thinks your price is more than the property is worth, you will receive a ‘down valuation’. A down valuation could lead to a revised mortgage offer, leaving you with a shortfall you can’t meet, leading to your purchase falling through.
Down valuations become more common whenever lenders turn cautious, which tends to follow rising borrowing costs or a run of falling prices. The surveyor is pricing the risk that a buyer cannot keep up repayments and the lender has to sell, so a market with fewer comparable recent sales produces more conservative figures.
In a cautious market a meaningful minority of purchases are down valued, and remortgages more often still, because a remortgage has no agreed sale price to anchor the surveyor.
If you want to go ahead with the purchase, begin by trying to renegotiate the sale price with your seller. If you are part of a chain, they may be flexible to keep everything moving and secure their purchase.
If this doesn’t work, you may need to make up the shortfall yourself, if you can. For this reason, buyers are often advised to pull together a hefty deposit with flexibility to allow for a smaller loan.
If this isn’t possible, you can challenge the valuation by showing evidence that your purchase is worth the money you have offered in the current market. Accepting your challenge on the valuation is at the discretion of the lender.
You may also be able to switch to a different lender, which may give a valuation closer to the sale price.
Down valuations can be frustrating and, in some cases, lead to a property purchase falling through, so it will help to do some planning to avoid a down valuation. These are some tips for avoiding a down valuation:
Conducting thorough research on the most recent local property sales will help you understand how much comparable homes sell for. If there’s anything unusual about the home you’re buying, look for a specialist lender with experience in this type of property. This also applies to sellers who want to avoid a sale falling through due to a down valuation.
As a seller, it can be tempting to take care of the sales process yourself or to save money by choosing an online estate agent. However, trusted local estate agents know the local housing market and can help to ensure that your property is accurately priced, which will help avoid a down valuation by the mortgage lender’s surveyor.
If you’re a seller keen to avoid your transaction falling through because of a down valuation, it’s essential to price your home realistically in the first place. Getting at least three valuations from local agents and researching local house prices will help. As a buyer, even if you find your dream home and you know there will be lots of interest in the property, you should only submit an offer that realistically reflects the current market value.
If you’re looking to buy or sell in south west London, talk to us. Our experience of the local market can help you navigate the current market, avoiding the pitfalls along the way.