Lender Valuations – who does it benefit?

When buying a house, your mortgage provider will carry out a valuation to check the property is mortgageable, but it’s essential to instruct an independent survey to protect your interests.

So your offer has been accepted, and you’re on your way to owning your own home, but before your lender approves the mortgage, they want to carry out a valuation on the property. It is a common misconception that this valuation is a full survey and that the surveyor would raise any issues with you, your lender, or solicitor; however, this is not the case. So what is the mortgage valuation, and why do you need one?

Mortgage valuation

A mortgage valuation is not a survey for the buyer’s benefit. A mortgage valuation is a particular type of assessment a lender carries out to validate a mortgage. It is entirely in the lender’s interest, carried out to assess the lender’s risk exposure. You may have to pay for this to get your mortgage approved, although it may be of no use to you, and you might not even get a copy.

When a bank, Building Society or independent financial institution lends someone money to buy a property, it is common to secure the loan against the asset which is purchased. Essentially this means that the bank has a charge over the property until you pay the entire loan off. If at any point you stop making payments and the lender can’t recover the money from you, they will repossess the property. If this happens, the lender needs to be sure that they can sell the property for enough money to recoup the money they originally lent you. To be sure that they will always be able to recover their loss, they need to value the property to ensure it is worth more than they are lending to you, or an amount the bank is willing to accept as security. They create what is known as a loan to value ratio, the lower this ratio, the lower the risk to the bank.

The surveyor who visits the property will follow specific instructions from the lender. The lender will provide the surveyor with their requirements, and the surveyor must check that the property meets each one. Some lenders won’t lend against certain property types or highlight particular features or characteristics as needing further checking or as unmortgageable altogether.

The final report may only be a couple of pages and will list all the main details about the property, the recommended valuation, and comparable evidence. In the industry, we call these tick box valuations, as they are quick and involve some multiple-choice fields. They only give a brief description of the condition and go into no specific detail.

So this report won’t be of benefit to you, as you need an impartial view of the condition of the property and if it is going to become a costly burden. The lender wants to assess their risk; they are not concerned about how much money you need to spend on repairs once you move in, or what you will achieve on resale, for these things you will need an independent RICS surveyor.

Independent survey

The RICS suite of home surveys includes the Condition report, the homebuyer report, and the RICS building survey.

RICS Home Surveys are for property buyers who wish to understand the buildings they are buying and the costs associated with the repair, maintenance, upkeep, in addition to how the property is likely to perform in a future market resale. It is possible to use these reports as a tool to renegotiate the purchase price if the surveyor finds any significant defects which are going to be costly to repair.

The independent survey usually happens after the acceptance of your initial offer.

There are three levels of RICS home report. Level one is the condition report; these reports check the basic condition of the building. We recommend a condition report for new builds, small flats, and conventional properties.

Level 2 is the RICS Homebuyers report, which reports on the condition of the property in addition to giving a valuation and a reinstatement cost. These are carried out on conventional buildings that are less than 80 years old.

The level 3 survey is the building survey which is appropriate for older, more substantial, less conventional buildings or buildings which have undergone renovation or extension. This report is highly in-depth but does not include a valuation.

All of these reports will give you the information you need to make informed decisions about your investment. The surveyor is acting on your behalf and so will be available to discuss their findings with you and advise as necessary.

If you would like to discuss matters further with us please do not hesitate to contact us.