When you apply for a mortgage your lender will normally arrange a mortgage valuation of the property you want to buy.
What are mortgage valuations used for?
Mortgage valuations are carried out for the lender in order to:
- Confirm the true value of the property
- Help them decide if the property will be a suitable security for the loan you have applied for
A mortgage valuation also allows the lender to work out the loan-to-value (LTV) ratio, this being the amount you want to borrow compared to the value of your home. The LTV determines the mortgage rates you will be eligible for. Keep in mind that a mortgage valuation is conducted for the lender’s purposes only, and not on your behalf.
An estate agent’s appraisal or valuation is not the same as the lender’s mortgage valuation. These are made by the estate agent with a view to advising the owner of the property what price they should put it on the market for.
What is involved in a mortgage valuation survey?
Mortgage valuations are done by professional surveyors or calculated using an AVM (Automated Valuation Model) which will be organised by your lender. The surveyor doesn’t strictly need to visit the property to do the valuation, and they can be done quite quickly, often within 1 to 2 weeks. Once completed, the lender will use the mortgage valuation to help decide if the property is appropriate security for the loan you have applied for.
A valuation and a mortgage lending decision are independent of each other; it is when the lender is happy with both, they will normally make you a mortgage offer. Mortgage valuations on buy-to-let properties will also include an estimated or possible ‘rental value’, which will be based on rents being achieved in the area. This helps the lender work out the lending amount, or LTV ratio on a buy-to-let property.
What could the lender need from you?
Structural Defects Warranty (SDW)
In some cases, a lender might ask for a Structural Defects Warranty (SDW) if the property is below 10 years old or has had a lot of renovation work or been converted. An SDW is given by the developer or bought by the original homeowner. They are designed to provide cover when it comes to the cost of carrying out repairs or remedial works being needed due to structural defects in new buildings.
External Wall System (EWS1) Form
An EWS1 form is filled in by a qualified professional after a fire safety assessment of the building’s external wall system, in line with government guidance.
The surveyor conducting the mortgage valuation will say whether an EWS1 form is needed. Typically, the building owner is responsible for getting the EWS1 form, and a mortgage application can be rejected if one is not provided.
What happens if the mortgage valuation is less than the price of the property?
In some situations, a property is valued at less than expected, if this affects the amount you can borrow, or the interest rates available to you, this is known as a ‘down valuation’. The mortgage lender might reduce the amount of money they are willing to lend you based on the outcome of the mortgage valuation and you may not be able to borrow the money for your loan at the same interest rate as previously agreed. Depending on the circumstances, lenders could let you challenge the outcome of the valuation.
How much does a mortgage valuation cost?
Mortgage valuation fees can vary, based on the type of property. Some lenders might not charge this fee on specific mortgage deals.
What should you keep in mind when it comes to mortgage valuations?
You shouldn’t rely on a mortgage valuation when buying a property
A mortgage valuation is based on a restricted inspection of the property and sometimes, only a ‘desktop’ report is done with no physical inspection of the property.
It is a good idea to get a property survey done on your behalf
This will report on the condition of the property for you and shed some light on any essential, and possibly expensive, repairs that might be needed.
Mortgage lenders have their own criteria
Some properties might not meet your lender’s requirements for a suitable mortgage security e.g. houses made of non-standard materials like prefabricated concrete or wood. It might not always be possible to identify if a property construction is outside of the criteria, without a professional valuation report.
Buildings insurance is a condition of the mortgage
Buildings insurance will protect you against the expense of repairing or rebuilding your home, should it get damaged by an insured risk. You will need to have buildings insurance in place when you exchange contracts or when you remortgage. However, you can take this out with a lender of your choice.
For more information about mortgage valuations or mortgages in general contact Finance Advice Centre today. Our expert advisers are on hand to guide you through the application process and give you the best chance of being approved for a mortgage.
As a mortgage is secured against your home or property, it could be repossessed if you do not keep up the mortgage repayments.