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Mortgage valuations and property surveys explained
The most important distinction is that a lender’s mortgage valuation and a survey arranged for your benefit are not the same thing.
A mortgage valuation helps the lender decide whether the property provides suitable security for the mortgage. A home survey gives you more information about the condition of the property and any defects that may need further investigation.
Understanding the difference can help you choose the right level of protection and avoid assuming that the lender’s valuation has checked everything for you.
What is a mortgage valuation?
A mortgage valuation is an assessment arranged by the mortgage lender as part of its application process.
Its main purpose is to confirm that the property appears suitable for the lender to accept as security and that its market value supports the amount you want to borrow.
For example, if you agree to buy a property for £300,000 and apply for a £270,000 mortgage, the lender needs to be satisfied that the property is worth enough to support that loan.
The valuation may also identify major issues that could affect the property’s suitability, such as serious structural movement, extensive damp, an unsuitable construction type or significant nearby risks. However, it is not intended to provide you with a detailed assessment of the building’s condition.
The lender is the client for the mortgage valuation, even if you have paid a valuation fee. The valuer is therefore reporting primarily for the lender’s benefit.
Is a mortgage valuation the same as a survey?
No. A mortgage valuation should not be treated as a substitute for a property survey.
A valuation may involve only a brief physical inspection, and in some cases nobody will visit the property at all. It is designed to answer the lender’s questions rather than provide a detailed report on everything that might cost you money after purchasing the home.
A survey commissioned by you has a different purpose. The surveyor will inspect the property for your benefit and provide information about its condition, visible defects and areas that may require further investigation.
If you only rely on the lender’s valuation, you could complete the purchase without knowing about problems that fall outside the scope of that assessment.
How does the lender value a property?
The lender decides which valuation method is appropriate. This may be influenced by the property, the requested mortgage, the loan-to-value and the information available about comparable sales.
The main approaches include:
Automated or desktop valuation
An automated valuation model uses property data, local sales evidence and statistical information to estimate the property’s value. A desktop valuation may also be reviewed by a valuer without them visiting the home.
These methods can make the mortgage process quicker, particularly where the property is relatively standard and there is plenty of reliable local sales data.
Drive-by valuation
With a drive-by valuation, the valuer assesses the property externally and uses local information to reach an opinion of its value. They do not carry out an internal
inspection. This is less common than it once was but may still be used in appropriate cases.
Physical valuation
A surveyor visits the property to complete a limited inspection and provide a valuation to the lender. Although the surveyor may note obvious concerns, the inspection is still not as detailed as a survey commissioned by the buyer.
You generally cannot choose which type of basic valuation the lender completes. If you want a fuller assessment of the property, you will normally need to arrange your own survey separately.
What are the different types of home survey?
RICS home surveys are generally offered at three levels. The most suitable option depends on the property’s age, condition, construction and whether you are planning significant work.
RICS Home Survey Level 1
A Level 1 survey is the most basic option. It provides an overview of the property’s condition and highlights significant issues that may require attention.
It can be suitable for a conventional property that appears to be in reasonable condition and has not been extensively altered.
The report is relatively concise and does not usually include detailed advice about repairs.
RICS Home Survey Level 2
A Level 2 survey provides more detailed information about the condition of the property. This is the survey that is sometimes still referred to as a HomeBuyer Report.
It uses a condition-rating system to identify issues, explain how serious they may be and highlight where further investigation is recommended.
A Level 2 survey is commonly chosen for conventional houses and flats that appear to be in reasonable condition. Depending on the service selected, it may also include the surveyor’s opinion of the property’s market value and a reinstatement figure for buildings insurance.
RICS Home Survey Level 3
A Level 3 survey is the most comprehensive of the standard RICS home surveys. It is sometimes informally called a building survey or full structural survey.
It provides a more detailed analysis of the property’s construction and condition, together with advice on defects, likely causes and possible repairs.
A Level 3 survey may be appropriate for:
- Older or unusual properties
- Listed buildings
- Homes in poor condition
- Properties that have been extensively altered
- Buildings constructed using non-standard methods
- Homes where significant renovation is planned
The surveyor will not normally open up walls or inspect completely inaccessible areas, so even the most comprehensive survey has limitations. Specialist reports may still be recommended for areas such as electrics, drainage, roofing, damp or structural movement.
Do you have any protection if the surveyor misses something?
When you commission a home survey, the surveyor is providing a professional service to you. If they fail to identify something that should reasonably have been discovered within the agreed scope of the inspection, you may be able to raise a complaint or pursue a claim.
That does not mean the surveyor is responsible for every issue discovered after completion. Your position will depend on the survey level, the terms of engagement, the limitations of the inspection and whether the defect was reasonably visible at the time.
This is different from a lender’s valuation, where the valuer’s primary duty is usually to the lender. Buyers should not assume they can rely on the mortgage valuation as reassurance that the property is free from defects.
What is a mortgage down valuation?
A down valuation occurs when the lender’s valuer assesses the property at less than the price you have agreed to pay.
For example, you might agree to buy a home for £300,000, but the lender values it at £285,000. The lender will normally base its maximum mortgage on the lower valuation rather than the agreed price.
Suppose you were seeking a 90% LTV mortgage. Instead of lending up to £270,000, the lender may restrict the mortgage to 90% of £285,000, which would be £256,500.
If you still wanted to pay £300,000, you would need to find a larger deposit to cover the difference.
Your possible options could include:
- Renegotiating the purchase price with the seller
- Increasing your deposit
- Asking whether the valuation can be appealed
- Applying to another lender
- Withdrawing from the purchase, subject to the stage of the transaction and
the rules applying where you live
A valuation appeal normally needs strong comparable evidence, such as recent sales of genuinely similar nearby properties. An estate agent’s asking price or an online estimate may not be enough.
Applying to another lender could result in a different valuation, but it could also produce the same result. A new application may involve another credit search, further costs and additional time.
Can a valuation work in your favour?
A favourable valuation can be particularly helpful when remortgaging.
If your property has increased in value while your mortgage balance has fallen, your loan-to-value may have improved. Moving into a lower LTV band could provide access to a wider or more competitive selection of mortgage products.
For example, if your property is valued at £300,000 and your mortgage balance is £225,000, your LTV is 75%. If the property is instead valued at £320,000, the LTV falls to just over 70%.
The higher valuation does not release money automatically, but it may affect the mortgage products available or the amount you could potentially borrow, subject to affordability and lending criteria.
If you have improved the property, it can be useful to provide accurate information about completed work. Extensions, conversions and major renovations may affect the value, although there is no guarantee that the property will increase by the amount you spent.
Should you arrange your own survey?
A survey is an additional expense, but it can help you understand what you are buying before you become legally committed.
The appropriate level will depend on the individual property. A recently built, conventionally constructed home may require a different approach from a heavily altered Victorian cottage.
If the report identifies problems, you may decide to obtain specialist quotations, renegotiate the price or reconsider the purchase. Even where nothing serious is found, the report may help you plan future maintenance.
In Scotland, sellers generally provide a Home Report before marketing a property, although buyers may still decide that further specialist investigation is needed.
Choosing the right valuation and survey approach
The lender will arrange the mortgage valuation it requires, so you do not usually need to organise that yourself. Your decision is whether you also want an independent survey and which level is appropriate.
At Crescent Mortgages, we can explain the lender’s valuation process, help you understand how the result affects your mortgage and talk through your options if the property is valued below the agreed purchase price.
Our mortgage advice is fee-free, so you will not pay us a broker fee for arranging your mortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
