Mortgage valuations explained
When applying for a mortgage or considering remortgaging, understanding the process and purpose of mortgage valuations is crucial. Lenders require these valuations to assess the property's market value, ensuring it matches the amount you wish to borrow. This step is not just a formality; it serves as a key risk assessment tool for the lender to determine the loan-to-value (LTV) ratio, which significantly influences the terms and rates of your mortgage offer.
Mortgage valuations are distinct from estate agent valuations or detailed house surveys. While an estate agent's valuation aims to suggest a marketable selling price, and a house survey offers an in-depth look at the property's condition for the buyer, a mortgage valuation is conducted for the lender's benefit. The lender uses this valuation to confirm that the property offers adequate security for the loan amount requested. Despite its importance to the lending decision, the borrower typically bears the cost, unless the lender offers a complimentary valuation as part of their mortgage deal.
The process can vary; some valuations are conducted in person, with a surveyor visiting the property to identify any visible defects that could impact its value. Alternatively, technological advances and the shift towards remote working practices have popularized desktop valuations, where a surveyor assesses the property's value using online data and records, and drive-by valuations, which involve an external inspection from the street.
A mortgage valuation assesses several factors, including the property's size, condition, and location, comparing it against similar properties in the area. This assessment helps lenders calculate the LTV ratio, a critical determinant of the mortgage rates available to the borrower. The lower the LTV, the more favorable the mortgage rates tend to be, as it indicates a lower risk to the lender.
The cost of a mortgage valuation can vary widely depending on the property's size and the lender's policies. Some lenders may offer free valuations as part of their mortgage packages, but it's wise to consider the overall cost and benefits of the mortgage deal rather than focusing solely on the valuation fee.
Following the valuation, the lender will review the surveyor's report to decide on the mortgage application. If the valuation matches the purchase price or remortgaging amount, it's a significant step towards approval. However, discrepancies can arise. For instance, a property valued lower than the offer price, known as a down valuation, may lead to a reduced loan offer from the lender, affecting the borrower's financing plans.
Moreover, mortgage valuations can uncover issues such as structural defects or conditions that could devalue the property, potentially derailing the mortgage application until further investigations or repairs are undertaken. In such cases, understanding the implications and possible next steps, including renegotiation or seeking alternative financing, is essential for borrowers.
In addition to their role in mortgage applications, valuation surveys can be necessary for other scenarios, such as probate, divorce settlements, or selling a property under a Help to Buy scheme. Selecting a qualified and experienced surveyor, ideally a Chartered Surveyor accredited by the Royal Institution of Chartered Surveyors (RICS), is vital for an accurate and reliable valuation.
Ultimately, while mortgage valuations primarily serve the lender's interests, they play a crucial role in the home-buying and remortgaging processes. Being informed about what a mortgage valuation entails, the potential outcomes, and how they impact the mortgage application can empower borrowers to navigate these steps more effectively, ensuring they are better prepared for any eventualities that may arise.
