Mortgage Valuation Surveys Explained

Mortgage Valuation Surveys Explained

There are several key steps on the road to buying a home, which can be daunting the first time you have to navigate through them. One of these that you might not have heard of before is the mortgage valuation survey, but what exactly is it? And what can you do to avoid it coming between you and your dream home? Here's everything you need to know.

Family in new home

What is a mortgage valuation survey?

A mortgage valuation survey is an important part of the process of buying a home. Once you have found the home you want to purchase and are applying for a mortgage to pay for it, the mortgage lender will commission a mortgage valuation survey to confirm the value of the property.

What does a mortgage survey look for?

A survey for mortgage valuation purposes will look for anything that might negatively impact the value of the property, like obvious problems or defects. The surveyor will also be there to confirm key details for the lender and afterwards will offer an assessment of the market value.

How do mortgage valuations work?

The mortgage valuation process begins after you have applied for a mortgage and confirmed which property you intend to purchase. After the lender has instructed a surveyor of their choice to conduct the survey, you can expect it to take place within the following two weeks.

Traditionally a mortgage valuation involves the surveyor physically visiting the property to assess it, but it is increasingly common for the valuation to involve desk research into property prices in the area as well as potentially driving past the home.

This became even more common during the pandemic so is expected to continue to grow in popularity for properties not seen as high risk. This new way of working also means that valuations are increasingly being offered free instead of at a cost to the buyer.

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Is a mortgage valuation the same as a survey?

A mortgage valuation is not the same as a property survey or a full structural survey. As mentioned above, a valuation often doesn't involve a surveyor visiting the home, which is essential in a building survey, where the condition of the property is the real focus, identifying any potential issues that might not be obvious to the untrained eye.

A key difference between the two is who the survey is for. A structural survey is done for the buyer, giving them all of the information they need to know in order to judge that the home is still one they want to buy, and can come with a detailed report explaining what needs to be done to correct any issues - and how much it might cost.

A mortgage valuation is important for the buyer as a step towards completion but isn't done for their benefit. It is purely to help the mortgage lender confirm that the property is worth the value that has been placed on it, to ensure that they will get their money back. Unlike with a structural survey, the buyer does not usually get any feedback or valuation report from the mortgage valuation beyond whether or not they are approved for the mortgage.

How much does a mortgage valuation cost?

The cost to buyers of a mortgage valuation varies and can range from £150 to £1,500, usually dependent on the price of the property itself. However, as we've already seen, many high street lenders offer it free as an enticement, especially if no physical visit has been required or the valuation has been calculated using an Automated Valuation Model (AVM).

What happens after a mortgage valuation survey?

While there is no valuation report for the buyer after a mortgage valuation survey, the mortgage lender will receive their opinion on the value of the home. This information is critical for the process of deciding whether or not to offer the money required because if the home isn't deemed to be worth what is being asked, it can impact the amount of money offered.

Interior of Earlsbrook development

What happens if the mortgage valuation is less than the property price (down valuation)?

When you go to buy a home, there will already be a value placed it on it by the sellers, in conjunction with their estate agents, or by the housebuilder if it's a new build. In the case of a home being sold by the current owners, you may try to negotiate the asking price down, or might have to offer above that asking price if there are other buyers in the running.

Assuming you have agreed on a price with the sellers, you next need to get your mortgage offer and the value of the property will again be assessed by a surveyor for the mortgage lender. If they determine that it is worth less than you are paying for it, this can leave you in a difficult position.

The mortgage lender is unlikely to offer you the amount you have applied for if the value doesn't match. This is called a down valuation and can result in a revised offer being made to you that doesn't give you enough money to complete the purchase.

How to avoid a down valuation?

A down valuation can scupper the whole purchase at a point when you might have felt like the home was as good as yours. In 2018 it was estimated that as many as one in five homes in the UK were down valued by mortgage lenders, a significant increase from one in 20 just two years earlier. So how can you avoid this happening to you? Here are some tips:

1. Research the value of the property

An important part of any big purchase is doing your research of local house price data. Before putting in an offer for a property, you need to do some of the kind of research that a mortgage valuation surveyor will do - at the very least checking what the prices are for similar properties that have sold in the local area over the previous six months.

If the asking price is much higher than those without good reason, this will be a red flag for the mortgage lender. Having this knowledge in your back pocket will also help you when it comes to negotiating the price with the seller.

2. Make a realistic offer

The housing market in some areas of the country - particularly here in the North West - has been highly competitive in recent times. This has meant that many homes have been listed at much higher prices than they would have been a couple of years earlier - and have still sold at even higher prices after a bidding war.

However, feeling pressured to significantly increase your bid for a home can put a strain on your chances of avoiding down mortgage valuations. If you have done your research and have an idea of the kind of prices homes are going for in the local area, you may be able to use this to negotiate a high asking price down, not only saving yourself money but also giving you - and the seller - a chance of avoiding a down valuation.

When you've seen the house of your dreams, it's easy to get carried away in a bidding war, but keeping the valuation in mind should help to keep your focus on making a realistic offer.

3. Choose the right mortgage lender

Finding the right mortgage provider is another important part of buying a home. Working with a mortgage broker will help you to find one that will get you the right mortgage deal in general but if you are buying a home that is unusual or might be seen as potentially risky for them, a broker will be able to point you in the direction of a lender that specialises in such properties and is less likely to baulk at the asking price and will find the right surveyor for the valuation survey.

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CONCLUSION

A mortgage valuation report is a key stepping stone for buyers to get through on their road to home ownership. However, as long as they have been realistic with their offers and have taken advice from a broker to select the right lender, there should be nothing to fear from mortgage valuations.

 

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