What is a Mortgage Valuation and How Does it Work?


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.

Over the last year, rising interest rates have impacted the housing market, with the average house price falling by 5.3% in the 12 months up to August 2023. Valuations are even more critical when there is a shifting market like this.

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.

What is a mortgage valuation report?

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.

How does a mortgage valuation work?

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.

What happens when a surveyor visits a property?

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.

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.

Automated and drive-by valuations

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.

Are mortgage valuations the same as property surveys?

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.

How much does a mortgage valuation cost?

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.

What if the surveyor doesn’t agree with the price I am paying?

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.

How common are down valuations?

In the current financial climate of high-interest rates, down valuations have increased in 2023. Surveyors and lenders are more cautious when valuing properties due to the increased risk of buyers being unable to repay their mortgages. House prices have started to fall in 2023, and this shifting market requires a more cautious approach from lenders.

In 2022, 12.8% of property purchases were downvalued, while around 15% of remortgages were downvalued.

What if my property has been down valued?

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.

What can I do to avoid a down valuation?

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:

Research local property sales

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.

Consult a trusted local estate agent

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.

Be realistic with pricing/offer

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.