What is a mortgage valuation?
There are some aspects of the home buying process which are a little confusing. For example, why isn’t an offer acceptance legally binding? When do I need to pay the deposit, and to whom? And what are ‘searches’?
You’ll find the answers to these questions elsewhere on our blog, but for now we’re concentrating on the often-misunderstood matter of the mortgage valuation.
What is a mortgage valuation?
The mortgage valuation involves a basic check of the house you’re hoping to buy. It’s carried out by a professional surveyor working on behalf of your mortgage lender.
The surveyor will check the property to make sure it’s worth what they’re lending you.
Things they check will include:
- The location – what’s the area like?
- The basic condition – is it on the verge of collapse?
- The asking price – is it priced comparably to other properties recently sold nearby?
- The floor plans – are they an accurate and true representation?
Practically all mortgage lenders require a mortgage valuation as a condition of their loan.
Remember - the mortgage valuation is to inform the lender only and should not be confused with the structural survey or homebuyers survey, which are in-depth assessments of the condition of the property and are designed to inform the buyer.
Why is the mortgage valuation necessary?
To understand the mortgage valuation, it’s helpful to consider why your mortgage lender demands one. Basically, they want to make sure that if for any reason you stop paying the mortgage, they can take possession of the house, and sell it to recoup their money.
This is part of the mortgage lender’s overall assessment of the risk of lending such a large sum of money to you. Other aspects of their checks include taking a look at your credit rating, income history and assets, which helps them build a picture of you as a lender.
If the mortgage valuation isn’t carried out, lenders risk shelling out for overpriced properties which they’d struggle to reclaim their money on.
Who pays for the mortgage valuation?
The buyer pays for the mortgage valuation. This is one of the upfront costs that you’ll need to pay for after having your offer accepted. Unfortunately, it’s also one of the fees you’ll lose should the sale fall through before the exchange of contracts (unless you’re covered by Home Buyers Protection Insurance).
What does a mortgage valuation cost?
Mortgage valuation fees are usually between £150 - £350.
When does the mortgage valuation happen?
The mortgage valuation should be booked as soon as your offer is accepted on the property.
In terms of when you’ll get your mortgage offer, this usually follows about a week after a successful valuation survey. If there are any issues uncovered, you’ll also hear within about 7 days of the survey.
Do I need a structural home survey as well as a mortgage valuation?
Yes! Don’t make the mistake of thinking that if your mortgage valuation goes without a hitch, you don’t need a full home survey or home buyers report. The mortgage valuation is simply there to assure your mortgage lender that the property is currently worth what they’re lending – not offer you as the buyer any kind of indication of whether there will be issues or repairs needed down the line.
What is a ‘down valuation’?
A down valuation refers to when the mortgage lender has valued the property at less than you were planning to pay for it – and as a result, they’re only prepared to lend you part of the sum you’ve requested.
They may offer you a sum equivalent to what they could reasonably expect to recoup by the property if it came to it. This will leave a shortfall to meet the property’s asking price, which you’d have to find from elsewhere or kiss the property goodbye.
For example – if you want to buy a house for £300,000 on a 90% loan-to-value mortgage (LTV) with a 10% deposit of £30,000, you’re hoping to get a £270,000 loan from the mortgage lender.
If the valuer decides it’s only worth £275,000, the mortgage lender will now only lend you £247,500. You’re now left with more than £20,000 in shortfall, which you’d have to make up yourself.
I’ve had a down valuation – what now?
If you’ve just received notification of a down valuation, don’t panic. It’s not good news, but there are a couple of steps you can take.
Re-negotiate the house price
A down valuation means you’re in a good position to renegotiate the purchase price with a lower offer. Look at it this way – if your mortgage lender has decided the property isn’t worth it, other lenders are likely to reach the same conclusion – something that won’t have escaped the attention of the seller and their agent.
Appeal the valuation
This isn’t a dead cert by any means, but you could always try to appeal the decision with the mortgage lender’s surveyor. One reason why down valuations can be inaccurate is in a booming and rapidly rising property market where data on sold prices aren’t yet reflective of the true price potential. If you think this has happened in your case, you could try to present a couple of recent examples of similar properties in your postcode which have sold high very recently. Don’t hold your breath for the decision to be changed, though.
Find the money elsewhere
Unfortunately, this is the only option in many cases following a down valuation. Whether it’s savings, a personal loan or releasing equity from another property (if you own one) – if you’re dead set on this property and believe the asking price is fair – making up the shortfall yourself may be the only option. It’s always a good idea to seek professional advice from your mortgage advisor before making any big decisions in this area.
Find another property
It might be that it’s simply not an option for you to make up the shortfall yourself following a down valuation. In such cases, your only choice might be to find another property that your lender agrees is worth the asking price and will happily lend you the full amount.