If you’re purchasing a home and require a mortgage, you’ve probably heard the term “mortgage valuation.” Understanding how mortgage valuations function is essential for any potential homeowner because they are used by lenders to determine the eligibility of houses for purchase.
A mortgage valuation, similar to but not the same as a building survey, helps establish whether a property has a fair market value. It also advises the lender of any serious problems and/or required repairs that may damage the property’s value as collateral for a proposed loan.
This article examines everything you may expect from the mortgage valuation report, from how long it takes for the offer and cost to the specifics of what surveyors are looking into.
What is a Mortgage Valuation?
A mortgage valuation is an assessment of the property’s value by your mortgage lender. They will send a qualified surveyor to value the property, who may also be a valuation specialist.
The purpose of the valuation is to determine how much the property is genuinely worth and whether or not your mortgage should be approved. This will be used by your lender to determine if the property is worth the money you (and thus they) are being asked to pay for it. The lender will then decide whether or not to offer you a mortgage on it.
A ‘down valuation’ occurs when the valuation is less than the agreed-upon sale price. Your lender may therefore opt to deny you the mortgage or to lend you less than the full amount. They could also change the interest rate.
What is a Mortgage Valuation Report?
Prior to the exchange of contracts (release of the offer) to purchase a property, the buyer or the buyer’s mortgage provider will typically commission this mortgage valuation report.
The mortgage valuation report is paid for by you, the borrower, but it is normally entirely for the benefit of the mortgage provider, but this is not always the case. The lender will have a certain minimum loan to value ratio requirements, and the report will establish that the property is of adequate worth to meet these standards. The report does not have to appraise the property at the purchase price if the loan-to-value ratio is still met.
A valuation or survey is not necessary if you do not require a mortgage. However, given the sums involved, a valuation survey of some form conducted by a competent independent RICS Chartered Surveyor third party would be prudent.
What Is Involved in Mortgage Valuations and How They work
Lenders may do property valuations in a variety of methods.
A surveyor will usually visit the property you’re interested in buying and prepare a short report.
However, in other cases, the surveyor will make a valuation using online data such as recent sales data, Land Registry details, and local knowledge.
- When the surveyor comes to inspect the property, the surveyor may spend 15-30 minutes walking about the property and conducting the survey, checking for any damage that may effect the property’s value, and providing preliminary comments to the lender.
- Following the completion of the tour, the surveyor will determine the market worth of the property. They’ll look at previous sales of similar properties in the region as well as their own expertise in the current market.
- They might also tell you what the minimum reinstatement value’ is. This is the cost of rebuilding the property from the ground up, which might be important when seeking building insurance throughout the home buying process.
How long after valuation to mortgage offer?
If there are no concerns when the valuation is received by the lender, this will result in the mortgage offer, which can take roughly one week (but can vary depending on particular circumstances).
Is mortgage approval contingent on valuation?
The completion of a valuation does not imply that the mortgage is approved; nonetheless, the valuation report may highlight concerns. For instance:
- The property’s state, such as its overall stability,
- The property’s worth is less than the offer price.
Other requirements that may or may not be met include:
- Applicant eligibility checks that do not fit the lender’s criteria, such as affordability checks, or personal circumstances that have changed since the first application.
What Does a Mortgage Valuation Report Include?
A mortgage valuation is NOT a property survey, even if it is performed by a certified surveyor. They will do a brief examination of the property, which may reveal some condition issues such as dampness or subsidence, but the report will be far less comprehensive than an independent survey.
Remember that the valuer is primarily concerned with issues that may jeopardize the security of the mortgage lender’s loan. The lender only needs to know that if necessary, they may recoup their money. The report is prepared for the advantage of the lender, not you. In fact, you may never receive the report, and if you discover any faults when you move in, you will have no recourse.
As a result, you should never depend solely on a mortgage valuation to determine the condition of a property. To avoid purchasing a property with unanticipated concerns, we recommend conducting a proper, independent construction survey. If you are in Scotland, you will need to spend some time reviewing the Home Report.
How Long Does a Mortgage Valuation Take?
There are various degrees and types of mortgage valuations.
Some take longer than others, in terms of execution and organization. A normal valuation typically takes less than 30 minutes and can be completed quickly. On the other hand, arranging an in-depth Home-Buyers Report or Building Survey can take several hours and a few days.
These deadlines allow the lender-approved surveyor ample time to go around the property, do their checks, and provide preliminary input to enable the lender to make an informed decision about its mortgageability.
A mortgage valuation may indicate the necessity for additional surveys, such as damp, structural, or drainage surveys, which are excellent indications of the state of a property.
What Information Might a Lender Require From You For Mortgage Valuation?
#1. Structural Defects Warranty (SDW)
A lender may request a Structural Defects Warranty (SDW) if the property is less than ten years old or has been extensively remodeled or converted. The developer provides or the original homeowner purchases an SDW. They are intended to cover the expense of carrying out repairs or remedial works caused by structural flaws in new buildings.
#2. External Wall System Form(EWS1)
In accordance with government guidelines, an EWS1 form is prepared by a competent professional following a fire safety inspection of the building’s exterior wall system, such as cladding.
The mortgage valuation surveyor will determine whether an EWS1 form is required. The EWS1 form is typically obtained by the building owner, and a mortgage application may be denied if one is not submitted.
What if the Mortgage Valuation is less than your Initial Offer?
If a surveyor values the property you intend to buy at a lower price than you initially asked for it, this is referred to as a ‘down valuation.’
According to Benham and Reeves, a London-based estate agency, over 400,000 properties were downvalued between the summers of 2020 and 2021, indicating that this technique is becoming increasingly common in the homebuying process.
A surveyor may reduce the value of a property for a variety of reasons, but the following are the most common:
- Spectacular asking prices
- Issues with the property
- Lenders exercising caution
If you’ve received a down valuation from your lender and are unsure what to do, take heart in the fact that there are options accessible to you.
To begin, try to renegotiate your first offer with the seller — or simply drop it to reflect the valuation outcome. They may be willing to negotiate a lower price in light of the findings of your mortgage valuation.
You might also increase your deposit to cover the expense of the down valuation. This may imply depleting resources set aside for other household bills or upgrades, but if it expedites your purchase, you must evaluate all available possibilities.
Be cautioned that a decrease in valuation does not necessarily imply that you will no longer be able to finance your ideal property; however, you may find yourself needing to make certain financial compromises in order for the transaction to proceed.
What is the Cost of a Mortgage Valuation In The UK?
Mortgage valuation fees differ according to the type of property.
Because the cost of a mortgage valuation is computed based on the value of the home being assessed, the price might vary rather considerably. In most cases, the price will be between £150 and £1,500. To be safe, attempt to budget for a more expensive valuation. However, your mortgage broker should be able to offer you an indication of the property’s value, or what your lender typically charges, and hence the cost of a valuation.
Be aware that you do not get to choose your mortgage appraiser, and the fee is sometimes bundled with the other charges of your mortgage. The lender will handle the valuation; they have their own team. You won’t have to worry about putting it up, but you’ll have to pay for it.
Some lenders, however, provide free valuations as part of their mortgage arrangement as an inducement to choose them. If this is something that interests you, your mortgage broker can help you find it.
What Happens Following a Mortgage Valuation?
Following the completion of the mortgage valuation, the surveyor will send their report to the lender, who will then evaluate whether or not the property is mortgageable.
Some lenders give applicants with a copy of their mortgage valuation report; however, this is not always possible, so before you commit to anything, make sure you find a supplier who can meet your needs.
If your mortgage valuation is level, it signifies that everything is in order and you may proceed with the home buying process without any complications. You may also obtain a high mortgage valuation, implying that you are paying below market value for the property.
Unfortunately, you may also receive a “down valuation.” This means that the surveyor assessed the property at a lower value than what you agreed to pay for it. In this instance, you should evaluate and renegotiate your offer.
What is the difference between a mortgage valuation and a home survey?
A mortgage valuation estimates the value of a property for the lender’s benefit in order to verify a mortgage, whereas a house survey is done to examine the property’s condition and identify any faults or repair costs to the potential buyer.
Conclusion
Obtaining a mortgage valuation is required in order to secure a mortgage. Lenders will want to know that they are investing a reasonable amount of money in a property and will not lend you money unless they believe the property is worth it.
It is crucial to remember, however, that each mortgage lender will have their own set of criteria for determining the value of a property. For example, the use of particular materials may reduce the value of a property in the eyes of one lender but not in the eyes of another. If your mortgage broker believes there are any hazards, they will be able to tell you.
Mortgage Valuation FAQs
How long does a valuation take?
An in-depth survey typically takes between 50 minutes and two hours. Meanwhile, the appraiser may take as little as 10 minutes or as long as 30 minutes to complete an assessment.
Can a mortgage be refused after valuation?
Mortgages can be denied following a valuation for a variety of reasons, including; the mortgage lender being dissatisfied with the property’s condition. The lender considers that the property is overpriced and that the selling price does not reflect the genuine value of the property.
Should I clean my house before a valuation?
Although estate agents do not take photographs during valuations, you should make your home as appealing, clean, and pleasant as possible for every potential buyer’s visit. Seeing your property in its best light can help them make the most accurate, honest, and positive valuation possible.
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