When purchasing or remortgaging a property, obtaining an accurate valuation is a critical step that can significantly impact the process. This article will explore a mortgage valuation, its significance, and how it can affect your property plans.
At Connect Mortgages, we assist with this vital aspect of your home financing process. If you have any questions or need expert advice, use our local branch finder to contact us easily.
Defining a mortgage valuation
A mortgage valuation is a type of survey the mortgage lender conducts to determine the property’s value you intend to purchase or remortgage. It verifies whether the property’s worth aligns with the proposed purchase price. This survey is essential as it determines whether the lender will approve the mortgage funds required to complete the purchase.
Lenders may also conduct a mortgage valuation for existing homeowners looking to remortgage to ensure the property’s value corresponds to the provided paperwork.
The role of mortgage valuations
A mortgage valuation serves several essential functions that impact both the lender and the borrower:
Confirming Property Value and Security:
One of the primary purposes of a mortgage valuation is to determine the property’s value and ensure that it offers suitable security for the loan. The valuation is instrumental in assessing the property’s worth relative to the loan amount.
Loan-to-Value (LTV) Calculation:
The mortgage valuation helps the lender calculate the loan-to-value ratio, or LTV, which represents the amount you wish to borrow about the property’s value. The LTV ratio is crucial in determining the mortgage rates for which you are eligible.
Lender’s Perspective:
It is essential to recognise that a mortgage valuation is conducted solely for the lender’s benefit and not on behalf of the borrower. Its primary purpose is to assist the lender in evaluating the property’s suitability as collateral for the loan.
Benefits of a mortgage valuation
While mortgage valuations may benefit lenders primarily, they also offer valuable insights for potential buyers. Understanding whether the proposed purchase price is reasonable empowers buyers to make informed decisions and ensures they are not overpaying for the property. 
It is crucial to note that a mortgage valuation differs from a house valuation. A mortgage valuation is undertaken on behalf of the lender, whereas a house valuation serves the buyer’s interests, especially if it involves selling the property.
What to expect from a mortgage valuation
A mortgage valuation occurs after the buyer and seller agree on a price, and the property is removed from the market. It happens once the mortgage application is submitted but before the lender issues a formal mortgage offer.
The surveyor assesses the property, and an in-person visit may not always be required. In some cases, an external inspection might be enough if the lender already has sufficient details about the property and area. The surveyor checks for problems that could affect the property’s value, such as non-standard materials or visible structural defects.
Understanding down valuation
Sometimes, a mortgage valuation may report a lower property value than the agreed sale price or proposed remortgage value. This situation is referred to as a “down valuation.” A down valuation may lead the lender to reassess or amend the mortgage offer based on the lower property value. As a result, buyers might need to secure extra funds or renegotiate the purchase price with the seller.
A down valuation typically occurs during the process of selling a home. Once a buyer has been found and a sale price agreed, often around £500,000, their lender’s surveyor evaluates the property’s value to confirm its market worth and support the proposed loan amount.
Lenders prioritise ensuring the property is worth the amount the buyer plans to borrow. However, if the surveyor values the property at £450,000, this results in a 10% down valuation. Such outcomes can challenge buyers and sellers, requiring additional financial planning or price adjustments.
Several factors can contribute to down-valuing
Overambitious Price Tag:
Sometimes, sellers may set an unrealistic and overambitious price tag on their home, leading to a discrepancy between the seller’s asking price and the surveyor’s valuation.
Overestimating Renovation Value:
Sellers might need to be more optimistic about the value added to their property due to renovations or improvements, resulting in a disparity between their perceived value and the actual appraised value.
Lender Caution:
Lenders may exercise caution and be vigilant about over-inflated property prices in the market, leading to more conservative valuations.
Property Issues:
Surveyors may identify problems with the property that could affect its value, leading to a lower valuation than expected.
Lack of Local Market Expertise:
In some cases, surveyors may need to be more familiar with the nuances of the local property market, especially when evaluating properties outside their usual area of expertise, potentially impacting the accuracy of their valuations.
Down-valuing can occur when selling a property, and various factors can influence it. Sellers should set realistic asking prices, and buyers should be prepared for potential variations in valuation. Working with a knowledgeable estate agent can help navigate these situations and ensure a smoother transaction process.
What happens if your own home is down-valued when remortgaging your property?
When you remortgage your property, down valuations can create challenges beyond buying or selling a home. Remortgaging often occurs when your current mortgage deal, such as a two-year or five-year fixed-rate term, ends. It allows you to switch to a new deal without moving home.
Lenders conduct a valuation to assess your home’s current value as part of the remortgage process. If the lender determines that your property is worth less than expected, this can complicate your application to switch lenders.
In some cases, your application for a new mortgage deal may be rejected due to a down valuation. This can make it harder to secure a better deal with another lender. As a result, you may have to remain with your existing lender and move on to their standard variable rate (SVR). SVRs often come with higher interest rates than fixed-rate deals. This can lead to a noticeable rise in your monthly mortgage repa
Avoiding down valuation
Research current property values in your area to avoid down valuation issues during remortgaging. Consult a reliable estate agent for an accurate property appraisal. Seeking guidance from a professional mortgage broker can help identify suitable remortgage options. It can also address potential challenges during the process. Being informed and prepared improves your chances of securing a favourable remortgage deal. It may also help reduce your monthly repayments.
To mitigate the risk of a down valuation, buyers can take several proactive measures:
Research the Property’s Value:
Analyse recent property sales in the area to gain insight into fair market value.
Seek Expert Opinion:
Consult with a local estate agent like Connect Mortgages to provide a suggested price based on the property’s characteristics and local market activity.
Make a Realistic Offer:
Utilise research findings to make a reasonable offer that aligns with market trends and comparable property sales.
Cost of a mortgage valuation
The cost of a mortgage valuation typically varies based on the property’s price, ranging from £150 to £1,500. Some lenders may offer this service for free. You can read more in our article, “Mortgage Valuation Fees | A Fascinating Insight.”
Mortgage valuations vs. Property surveys
It is essential to distinguish between mortgage valuations and house surveys. While a mortgage valuation serves the lender’s interests, a property survey serves the buyer’s concerns and uncovers potential issues that may impact the property’s value or resale prospects.
There are four main types of house surveys, each offering varying levels of detail:
- Mortgage Valuation
- Condition Report
- Homebuyer Report
- Building Survey/Full Structural Survey
While a mortgage valuation may be a prerequisite, buyers should consider obtaining at least a Condition report to better understand the property’s condition and potential issues.
Navigating the mortgage valuation process with Connect Mortgages
At Connect Mortgages, we understand the importance of accurate mortgage valuations and their effect on your property plans. Our experienced advisors are ready to assist you through this process, helping you make informed decisions about your property investment. Whether you are a first-time buyer, remortgaging your current property, or expanding your portfolio, our wide range of mortgage products suits various budgets and needs.
As the UK economy changes, interest rates and market conditions may vary. It is essential to stay informed and work with experienced mortgage professionals. With Connect Mortgages supporting you, achieving your property goals becomes easier. We are dedicated to providing impartial advice and excellent service to help you secure the right mortgage.
Mortgage valuations play a crucial role in buying or remortgaging a home. They influence lender decisions, property transactions, and financial plans. Understanding mortgage valuations helps buyers make smart choices and overcome any challenges. As a trusted mortgage broker, Connect Mortgages offers the guidance and expertise needed for a smooth property journey.
Thank you for reading our publication “Mortgage Valuation | Understanding The Astonishing Impact.” Stay “Connect“-ed for more updates soon!
