Property Valuations When You're Applying For A Mortgage

20th June 2017

When you apply for a mortgage, the lender seeks an independent opinion on how much the property is worth. The property valuation generally involves a review of market values and a quick check of the property. This helps the lender decide whether they’re willing to go ahead with the mortgage.

Property Mortgage Valuation

Key points to remember:

  • When you’re applying for a mortgage, the lender will get a valuation to check the value of the property.

  • You’ll generally need to pay for the valuation, so factor this in when you’re calculating costs.

  • A valuation usually involves checking sale prices of comparable properties and taking a quick look at the property.

  • The valuation can impact the application decision, the amount you can borrow, and the rate you’re offered.

  • A property valuation isn’t the same as a survey, which reviews the condition of the property and identifies potential issues.

What is a property valuation?

Before a mortgage lender will approve your mortgage or remortgage application, they’ll want to check the value of your home. They do this by commissioning a property valuation from a surveyor, which is sometimes called a mortgage valuation or a lender’s valuation.

The surveyor will look at the value of similar properties in the area, and may do a brief external and/or internal inspection of the property. They’ll provide the lender with a short report based on this that includes their valuation and they’ll flag any significant issues with the property.

The lender uses this information to decide whether they’ll lend to you and how much they’re willing to lend.

How much does a valuation cost?

The lender will arrange the valuation survey, but you’ll usually have to pay for it (see our full breakdown of mortgage fees), whether you’re taking out an initial mortgage or remortgaging.

Costs vary depending on the lender and the property, but you’ll usually pay a few hundred pounds. Some lenders offer mortgages with free valuations.

Bear in mind that if the survey is carried out, you’ll be required to pay the valuation fee even if the purchase doesn’t go through.

What happens if the valuation is low?

If you’re buying a property and the lender’s valuation is lower than the price you’ve agreed to pay, you may need to renegotiate with the seller, raise more money for the deposit, or pull out of the purchase altogether.

The property valuation is important for your mortgage calculations. For example:

  • You’re buying a property and you’ve agreed a price of £200,000 with the seller.

  • You have a deposit of £50,000, therefore you have a loan-to-value (LTV) ratio of 75%.

  • However, the lender’s valuation says that the property is worth £175,000.

  • The lender is only willing to lend you 75% of this value, which is £131,250.

  • You could try negotiating with the seller to lower the purchase price, or try to make up the shortfall with a bigger deposit.

If you’re remortgaging, a low valuation can also cause problems. For example:

  • You bought a house three years ago for £200,000 with a deposit of £10,000.

  • When you come to remortgage, you have £173,000 of debt remaining.

  • However, your lender receives a property valuation of £180,000, which means you only have £7,000 of equity in the property and your LTV is over 95%.

  • This may mean that the lender refuses your mortgage application, or offers you a rate that isn’t very competitive.

If the lender’s valuation identifies a serious issue with the property or if the property doesn’t fulfil all of the lender’s criteria, your mortgage application may be refused altogether. Different lenders have different rules, but mortgage providers may refuse to lend against the property if it’s in a flood zone or if it’s in a high-rise blocks of flats, for example.

Can I challenge a valuation?

If you don’t agree with the valuation, you can try to challenge it. You can do this by providing data showing the purchase prices of similar properties, for example. And if the surveyor didn’t carry out an internal inspection of the property, you could request one if you think this may make a difference to their valuation.

Is the property valuation the same as a survey?

It’s important to understand that the property valuation is not the same as a survey. The aim of the property valuation is to check how much the property is worth. It won’t highlight necessary repairs or possible structural problems.

When you’re buying a property, it’s important to get a homebuyer survey so that you’re aware of any issues with the building before you go ahead with the sale. If something comes up, you may be able to use this to negotiate a reduction in the purchase price.

There are several different types of survey available, and the one that’s most suitable will depend on the property you’re buying and how thoroughly you want everything checked.

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