Mortgage Valuation and Surveys: A Comprehensive Guide
Introduction
Whether you're buying, selling, or remortgaging a property, it's essential to understand the type of valuation or survey conducted and its implications for the transaction.
Failing to do so can lead to significant financial losses. While surveys add to the overall cost of property transactions, they typically represent a small fraction (often less than half a per cent) of the property's value.
We do not endorse any specific surveyors and recommend finding a surveyor local to you, where required.
What is a Basic Valuation for Mortgage Purposes?
Lenders must value a property as part of their due diligence, to ensure it aligns with their lending policy.
A basic valuation assesses risk factors that may affect the property's suitability as security for a loan and provides a rough estimation of its value.
Most lenders do not charge a fee for this basic valuation.
What are the Pitfalls of a Lender’s Basic Valuation?
It's crucial to note that a basic valuation is not designed for the buyer's benefit. Legally, buyers have no recourse for overestimations of property value or failure to identify defects like subsidence or non-mortgageable construction types. Many dissatisfied buyers have taken their cases to court, often without success.
Since the COVID-19 pandemic, using "desktop valuations" has become commonplace, meaning properties are frequently not inspected by a professional surveyor in person.
This practice significantly increases the risk for buyers who may unknowingly purchase properties with serious issues, such as subsidence or major construction defects, which could render the property worthless—with no recourse for the buyer.
In such cases, buyers risk losing their deposits or being stuck with a mortgage on a property that could be worth far less than expected.
Therefore, it’s vital for anyone buying a property to consider a more thorough survey unless they are comfortable assessing risks themselves.
What Other Valuation and Survey Options Are Available?
Buyers typically have the option of arranging either a homebuyer’s report or a full structural survey.
• Homebuyer’s Reports: These intermediate surveys highlight major defects and significant risk factors while providing detailed insights.
• Full Structural Surveys: These in-depth surveys cover everything from major structural issues to smaller problems like slipped tiles or leaking gutters.
What is Not Covered by a Homebuyer’s Report or Structural Survey?
Surveys are non-invasive and may not detect hidden problems unless clues are visible.
Defects could be concealed behind walls, carpets, or floorboards. However, the most significant issues typically present indicators that a skilled surveyor would notice.
It’s important to remember that many surveyors specialise in structural assessments rather than market valuations.
If the property value is a concern, ensure the surveyor provides a valuation figure in their report and get written confirmation before hiring them.
Surveyors will only comment on their areas of expertise and may recommend further inspections when necessary, such as electrical tests if the current installation is outdated.
Be prepared for reports to include warnings about far-off issues, such as roof replacements; you should approach the findings pragmatically.
Many reports will use a traffic light system of green, amber and red to indicate the severity and urgency of the issues outlined.
What Are the Benefits of Having a Further Survey When Buying a Property?
The most significant advantage of a further survey is the potential to uncover major structural defects that could go unnoticed, possibly saving you from losing tens of thousands of pounds.
Many surveys help buyers identify issues that can be used to negotiate a lower purchase price.
However, it’s important to consider the scale of any issues, as all second-hand properties will have age-related problems.
Should I Arrange a Further Survey When Buying a House?
If you cannot afford to risk significant financial losses, it is advisable to arrange for a further survey.
Many buyers believe that bringing a builder or someone knowledgeable about construction on a viewing will suffice, but these individuals have no financial liability to you.
Therefore, investing in a survey is a safer option.
Should I upgrade the lender's basic valuation to a survey?
Many lenders allow you to upgrade a basic valuation to a homebuyer’s report or full structural survey to be carried out by the same firm that performs the basic valuation.
We do not typically recommend arranging a further survey through the lender and advise using a totally independent firm instead.
Firstly, it can trigger long delays in obtaining a mortgage offer in some cases. You also lose all control of who carries it out, and the quality of the report.
Whilst it can be cheaper, it also means that the same surveyor might report far more issues back to the lender, resulting in requests for further reports before a mortgage offer is issued. This is often far more stressful than need be.
In certain circumstances, we might advise you to do it through the lender, particularly for relatively new properties where few faults are expected and the survey is mainly for peace of mind.
There is also a good chance that the basic valuation notifies you of significant issues for free, in this case, you might have spent several hundred pounds unnecessarily.
When should I conduct a further survey in the house-buying process?
We normally suggest waiting until you have received a mortgage offer approval as discussed above. Except in some auction scenarios, where specific advice should be sought prior to auction.
If the basic valuation raises issues you might save yourself the survey cost.
There are few downsides to waiting until you have a mortgage offer approved. You can still negotiate the price down, and take any further reports suggested by the surveyor.
The only real downside is time. Where extreme urgency is necessary, you may wish to instruct the survey as soon as the mortgage application has been submitted but not before.
Why might a lender's basic valuation be inaccurate?
In the case of desktop valuations, if no one sees the property in person, defects may go unseen which could lead to an overinflated valuation figure; as described above.
There is also the risk that insufficient market knowledge is available for the area, leading to an underestimation of value.
A surveyor working remotely at a distance might be unaware of key property differences.
Data available to a surveyor working remotely would not reflect if a comparable property had sold significantly below value due to issues like a Japanese knotweed infestation. So it is difficult without boots on the ground; to give accurate reflections of value.
How Do Desktop Valuations Affect Buyers and Sellers?
Desktop valuations often yield dubious estimates of a property's value or potential rental returns in the case of buy-to-let mortgages.
Lower-than-expected estimates may prompt buyers to put down larger deposits, benefiting lenders who can offer higher interest rates with lower risks.
To challenge a desktop valuation, buyers must provide comparable data to request an internal survey or seek another lender for a different result.
However, conducting thorough research is crucial, as the reduced valuation could be accurate.
As a seller, if your buyer receives a lower valuation without a surveyor inspecting your home, it may be unwise to negotiate on price until they have explored options with at least one or two other lenders.
Being realistic about your asking price and understanding comparable sales in your area is essential, as asking prices are not always reflective of true market value.
How Do Desktop Valuations Affect a Remortgage?
When refinancing, your current lender typically estimates your property's value when calculating the "loan-to-value" of the deal, affecting the rate offered.
These estimates can often fall below the actual market value, so knowing recent sales in your area is crucial.
Consulting a broker can help you explore alternatives and understand potential cost differences from switching lenders, as a better valuation may be obtained.
If you have made significant modifications to a property, such as a full renovation or extension, you may benefit from requesting an internal inspection, which may only be possible by switching lenders.
Many lenders will not conduct an internal inspection unless there has been a change to the property's footprint, which can be detrimental if you have renovated an existing building.
We do not usually charge fees for remortgage advice, allowing us to explore multiple lenders to facilitate an internal inspection, often resulting in a much better valuation than your current lender might provide.
Conclusion
In summary, it is crucial for buyers, sellers, and those remortgaging to understand the different types of valuations, how they can misrepresent potential value, and the impacts on costs.
Exploring alternative valuation options is essential for achieving the best possible mortgage rates and sale prices.