What To Expect From The Lender’s Valuation?
When financing a property purchase via a mortgage, lenders instruct independent valuations on the home. This estimates the market value to ensure adequate security against sums being borrowed. Knowing what to expect from these mortgage valuations stops buyers from overpaying or being surprised by down-valuations jeopardising finance.
Purpose of the Lender’s Valuation
Mortgage lenders require property valuations before approving loans for two core reasons:
To confirm security for the money being borrowed: Homes act as security against mortgages. If buyers default on repayments, lenders need confidence they can recover capital by repossessing and selling the property. An up-to-date valuation verifies the property could sell for a sufficient figure to repay outstanding loan balances.
To help set realistic loan amounts relative to value: Lenders want to establish current value to avoid lending disproportionate sums that buyers have little chance of paying back. Capped loan-to-values linked to strict affordability checks ensure prudent lending.
While house-hungry applicants often solely care whether valuations pass lender minimum thresholds, valuation reports also indirectly protect buyers against overpaying or over-borrowing. Prudent lenders mostly want sufficient assurances that purchases remain sustainable.
Who Carries Out Mortgage Valuations?
Mortgage lenders appoint valuation surveyors to provide impartial property appraisals accountably. Even ‘free’ valuations bundled into mortgage products get outsourced to specialist national firms like Connells Survey & Valuation or Countrywide Surveying Services.
Surveyors must hold recognised qualifications and professional body memberships to practice. RICS – the Royal Institute of Chartered Surveyors – represents the leading global association. Its registered valuers adhere to strict impartiality and competence requirements.
To avoid conflicts of interest, lenders never let estate agents value sale properties. Equally, buyers cannot pick their surveyors. Enforcing separation secures objective opinions.
What’s Assessed During Mortgage Valuations?
Mortgage valuations involve physical property inspections lasting around an hour. All reasonably accessible parts internally and externally get reviewed to ascertain:
Saleability for secured lending purposes based on location, property type, construction, and condition.
- Comparable local sale prices via recent land registry records.
- Any urgent repairs needed before lending could be contemplated.
- Suitability for insurance purposes regarding rebuilding costs.
Valuers particularly focus on matters influencing value like signs of structural movement or dampness. Dangerous electrics or ageing roofs also raise flags. House layouts get noted too, highlighting any illegal bedrooms created through garage conversions that could devalue.
Aspects impacting future saleabilities like proximity to schools, transport and amenities also feed into judgements. Scoping these supports the critical question of whether a quick sale at a decent price looks achievable if repossessed for mortgage default in future.
Crucially valuers do not perform exhaustive building surveys. Minor issues like redecorations or worn carpets get overlooked provided they don’t depress overall property worth. Equally, valuers don’t lift floorboards or drill holes testing everywhere for rising damp unseen. Their mortgage remit is simply estimating capital value, not highlighting wanted upgrades.
How Valuation Reports Format Findings
Standard mortgage valuation reports follow templated formats summarising property essentials like:
- Location & context
- Approximate age & property type
- Accommodation dimensions & layout
- Construction materials & condition
- Value-influencing factors like transport links or schools
- Market value figure & rationale
- Major repairs or limitations advised
Any detracting points that could impact value also get highlighted. For example, structural movement requiring underpinning supports or signs of penetrating damp lowering buyer demand.
Reports conclude by stating key assumptions like ‘vacant possession’ at the point of valuation, meaning valuers presume homes are emptied of tenants and contents ready for sale.
Receive the Final Valuation Report Before Exchanging
Mortgage lenders share formal valuation reports with the property buyer funding it, not the estate agent or seller. However, buyers should be careful not to pay survey fees upfront before mortgage offers get issued. Only fees linked to secured loan products normally prove refundable if valuations later fall through.
Also beware that some lenders now only provide summaries of key valuation details rather than full reports, often for data protection reasons. Check beforehand if you’ll receive a complete file letting you understand any risks highlighted that could influence negotiation positions. It is prudent to query relevant areas with surveyors before exchange.
What if the Valuation Amount Differs from the Offer Price?
When qualified surveyors value below the agreed offer price it’s known as a ‘down valuation’. Most lenders then restrict maximum lending limits to the lower land valuation figure to control exposure. This risks purchases falling through if buyers lack extra cash to bridge gaps.
Why does this happen?
Valuers take comparative methodology approaches analysing similar local sales. They also apply professional judgment calls regarding property market trajectories. If buyers negotiated optimistic prices in heated seller markets or gazumped rivals, valuation reality checks can burst bubbles.
Down valuations don’t necessarily derail deals completely though. Negotiating discounts, putting down larger deposits using savings, or securing extra funding from family or guarantors can all turn things around. Rapidly stabilising houses pre-purchase also boosts value appeal.
However, regular under-valuations infer overly aggressive pricing from agents or sellers. Don’t presume valuations automatically certify whatever sums get agreed upon! Objective sanity checking nearly always applies. Paying exaggerated premiums based on unrealistic expectations rarely leads to happy outcomes when the valuer’s estimate cuts figures down to size.
How Certain Valuation Methods Impact Mortgage Suitability
Mortgage lenders stipulate certain valuation methods for different scenarios. While basic valuations suffice for typical house purchases, non-standard properties often need deeper inspections. Common scenarios driving more intrusive surveys include:
New-Build Snagging Appraisals:
Detailed inspections record any defects needing developer rectification before lending. This prevents buyers from inheriting serious issues left unresolved.
Specialist Assessments of Non-Standard Construction:
In-depth analysis of building regulations compliance around timber framed builds, houseboats, converted barns or properties with strengthening modifications. This probes structural integrity and expected longevity that standard valuations don’t satisfy alone.
Business Use Appraisals:
Valuers must isolate actual residential worth for houses functioning partly as businesses or containing separate annexes/flats. Holiday-let style properties also measure letting income potential, not just overall bricks & mortar capital values.
Chartered Building Surveyor Opinions:
For unusually large or dilapidated properties, extra technical reporting provides greater risk analysis. This probes extensive repairs needed that could prevent liquidation to recover lending if owners defaulted.
Getting suitable valuation reporting thus proves vital for applicants without standard purchase needs who require greater lending certainty. Using the right surveying method for the property avoids nasty shocks or surveys missing vital flaws.
Emerging Valuation Innovations – Digital AVMs & Hybrids
A gradual shift towards digital automation now influences parts of the valuation process too. Computerised Automated Valuation Models (AVMs) instantly calculate worth based on land registry records without costly site visits. These appeal for allowing rapid or frequent revaluations.
However, most lenders still require human oversight through ‘Hybrid Valuations’ for accuracy. Blending desktop AVMs accelerated by algorithms with professional valuer sense-checks aims to digitally transform aspects of traditionally manual reporting.
Weighing up such balanced propositions continues within the industry. While technology streamlines elements, the assurance of visual appraisals endures riskier lending tiers. Straightforward remortgages on unchanged mainstream homes attract the earliest automation. But valuers still play pivotal roles in countering data gaps facing innovators when guaranteeing loans against bricks & mortar across diverse sites.
So for now, traditional site inspections endure as standard. Yet as predictive modelling improves and desktop data radicalises the property sector, a gradual blend of emerging digital feeds into elements of the human valuation process seems one likely next chapter in securing mortgage lending futures.
Mortgage valuations provide essential independent estimates of property worth to reassure both buyers and lenders when financing purchases. Understanding their remit delivers insight distinct from intrusive surveys that owners themselves depend upon.
While primarily securing risk exposure for lenders against defaults, valuations also steer sensible borrowing aligned to genuine market levels. Paying too great a premium and relying solely on ambitious agents or emotional attachments rarely leads to happy outcomes when surveyed analysis injects sobering reality.
Yet when suiting all parties, such reporting also gives lenders sufficient comfort to loan responsibly and buyers confidence in commitments made. For all the frustrations possible around down valuations, robust reporting ultimately results in sustainable ownership and lending journeys ahead for both the applicant and financial backer.