Mortgage Valuation
When it comes to 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 are here to help you navigate this crucial aspect of the home financing journey. Should you have any further questions or need expert guidance, our local branch finder allows you to reach out to us conveniently.
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 in relation to the property’s value. The LTV ratio is crucial in determining the mortgage rates you are eligible for.
- 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 appear to 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 typically occurs after the buyer and seller have agreed upon a price, and the property is taken off the market. This occurs after submitting the mortgage application but before receiving the mortgage offer from the lender.
The mortgage valuation surveyor will evaluate the property; sometimes, an in-person survey may not be necessary. An exterior assessment might suffice if the lender possesses adequate information about the area and property. During the valuation, the surveyor will look for any issues that may impact the property’s value, such as non-standard building materials or visible structural concerns.
Understanding down valuation
In some instances, the mortgage valuation may result in a lower property value than the agreed sale price or proposed remortgage value. This situation is known as a “down valuation.” A down valuation could prompt the lender to review or revise the mortgage offer to reflect the lower property value. As a result, buyers may need to secure additional funds or renegotiate the purchase price with the seller.
Down valuing typically occurs when you are in the process of selling your home. Once you have found a buyer and agreed on a sale price, usually around £500,000, their lender’s surveyor steps in to assess the property’s value and validate the asking price.
The lender’s main concern is ensuring that the property is worth the amount the buyer intends to borrow for it. However, if the surveyor determines that the property’s value is, for example, £450,000, it results in a significant down valuation of 10%. This situation can create challenges for both the seller and the buyer.
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.
In conclusion, 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 decide to remortgage your property, down valuations can present a significant challenge, not just when selling or buying a home. Remortgaging often occurs when your current mortgage deal, such as a two-year or five-year fixed-rate term, ends, and you wish to switch to a new one without moving home.
During the remortgage process, a valuation is conducted to assess the current value of your home. If the lender determines that your property’s value is lower than your expectations, it can lead to complications with your application to switch to a new lender. 
Sometimes, your application for a new mortgage deal could be rejected due to the down valuation, making it challenging to secure a better deal with another lender. As a result, you may be left with limited options and be forced to move onto your existing lender’s standard variable rate (SVR). The SVR often carries higher interest rates compared to fixed-rate deals, resulting in a substantial increase in your monthly mortgage repayments.
Avoiding down valuation
To avoid potential down valuation issues during remortgaging, it’s essential to conduct thorough research on the current property values in your area and work with a reliable estate agent for an accurate property appraisal. Additionally, seeking the advice of a professional mortgage broker can be beneficial in finding the most suitable remortgage options and navigating any challenges that may arise during the process. Being well-informed and prepared can increase your chances of securing a favourable remortgage deal and save money on 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 on this 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 better to understand the property’s condition and potential issues.
Navigating the mortgage valuation process with Connect Mortgages
At Connect Mortgages, we understand the significance of accurate mortgage valuations and their impact on your property journey. Our team of expert advisors is well-equipped to guide you through this process, ensuring you make informed decisions about your property investment. Whether you are a first-time buyer, remortgaging your existing property, or looking to expand your property portfolio, our comprehensive range of mortgage products caters to diverse budgets and requirements.
As the UK economy evolves, interest rates and market conditions may fluctuate, making it essential to remain well-informed and collaborate with experienced mortgage professionals. With Connect Mortgages by your side, you can confidently pursue your property goals. We are committed to offering unbiased advice and exceptional service, helping you secure the mortgage that best suits your needs.
In conclusion, mortgage valuations are vital to home buying and remortgaging, impacting lender decisions, property transactions, and financial plans. Understanding the intricacies of mortgage valuations empowers buyers to make prudent choices and navigate any challenges that may arise. As a trusted mortgage brokerage, Connect Mortgages provides the necessary support and expertise, ensuring every client’s smooth and successful property journey.
