How Does a Mortgage Valuation Work?

A mortgage valuation is completed by a surveyor for the benefit of the lender rather than the buyer.

The purpose of a mortgage valuation is to provide the lender with answers to two key questions:

1. Is the property worth what the buyer is willing to pay?
2. Does the property provide sufficient security for the mortgage loan?

It’s important to remember that when a property is placed on the open market, the price is typically set by an estate agent on behalf of the seller. So, while a mortgage valuation isn’t done for the buyer’s benefit, it can give you the comfort of knowing whether the price you’re paying is fair value or not.

How much does it cost?

The cost of a mortgage valuation is usually based on the value and size of the property you’re looking to buy. Typically, fees will start from £200-£250, although some lenders may offer a valuation for free as part of their overall package.

These days, with the amount of information and data available online to lenders and surveyors, most mortgage valuations can be done in minutes without even needing to visit the property in question. If a visit is needed, it will usually be a ‘drive-by.’ The lower the loan-to-value ratio (LTV), the more likely an automatic valuation will be done. Whereas, if the LTV is higher, there’s more likely to be a physical valuation.

More in-depth valuations, where a surveyor is required to conduct a thorough inspection of a property, will usually occur if, for example, it’s been built using non-standard materials (timber framework, concrete walls, etc.) or if it’s in an area the lender is unfamiliar with.

For example, if your lender has advertised a free valuation as part of its mortgage package, this offer likely is because its surveyor already has enough information online to provide an accurate valuation on the type of property you’re buying and the area where it’s located.

Opting for a more comprehensive survey beyond the basic lender’s valuation, such as a homebuyer report or a full structural survey, will entail additional costs. A more detailed survey can provide peace of mind but adds to the overall home purchase expense. You should consider these potential costs early in the buying process to ensure you have sufficient funds to cover all necessary property assessments.

Mortgage valuations are not the same as a homebuyer report or full structural survey and shouldn’t be relied upon as an alternative to highlight any potential construction defects. Many lenders usually won’t show you the mortgage valuation, specifically if it’s been a free valuation. Some lenders will share the valuation report with you, while others won’t.

How important is a mortgage valuation?

A mortgage valuation is crucial in determining the loan size a lender will be willing to offer you. If the surveyor’s valuation satisfies a lender’s key concerns that the price agreed for a property is fair and the security is good, they can proceed to the next stage of the mortgage application as originally planned.

However, if a surveyor’s valuation suggests the price is too high, a lender will likely have to revise (and reduce) the size of the mortgage loan they’re willing to offer. This could potentially place the entire sale at risk.

For example, if the price you’ve agreed on a property is £200,000 and the maximum LTV a lender will offer is 80%, this means you can borrow £160,000. If a surveyor recommends a down valuation to £180,000, the amount you can borrow now is £144,000 (80% LTV).

The seller is under no obligation to agree with the surveyor’s valuation and reduce the sale price accordingly, so this could leave a £16,000 shortfall from where you were at the beginning.

The upside to a down valuation

On a more positive note, whilst a down valuation can bring an end to a property sale if all relevant parties don’t agree, in many cases, a seller may have to accept that if one lender’s surveyor believes the price is too high, then it’s likely others will too. So this places a buyer in a strong position to negotiate the sale price closer to the mortgage valuation.

You can avoid the prospect of a down valuation by conducting lots of research on property prices (Zoopla, Right Move, etc.) before you decide to make an offer on the one you like. Working with a mortgage broker will also help you choose a lender with experience in the area you’re looking to buy.