Mortgagemap

House Valuation

For a Mortgage Lender to approve you for a loan, you have to pass two main stages.

The lender is firstly going to make sure you look a good bet to repay the loan (Income, Credit History etc).

Secondly they want to make sure, that the property is adequate security for the loan.

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You have to remember that if it all goes wrong the lender may need to repossess the property and sell it, to get its money back.  They want to make absolutely sure it will cover the debt.

A valuer carrying out a basic or standard survey is acting on behalf of the lender, not you the customer. (Even though you are paying) The valuer is there to assess whether the property is adequate security for the loan and to guard against fraud. The lender would have a difficulty to re-possess, if the property did not exist!

They are also there to bring to the customer’s attention factors that may be of interest about the property. The exact details of the information in the valuation report depend on what kind of report a customer asks for. The content will be individually tailored dependant upon the customer’s property and factors that impinge upon it.

Most lenders have a panel of surveyors they use. They would normally have some criteria in place to make sure that any they use are up to standard. These could possibly include the following.

Indemnity insurance of £500K + with the requisite paperwork from an insurer. This is to cover any costs should the firm be sued for professional negligence.

At least 2 PARTNERS in the firm.

Verified Professional Qualifications - Incorporated Society of Valuers and Auctioneers (ISVA) or Royal Institution of Chartered Surveyors (RICS)

Have no outstanding complaints against them that are lodged with their governing body

Provide specimen signatures for verification purposes.

Provide a CV.

A reference from another lender to demonstrate quality work in the past.

 

 Types Of  Property Valuation

 

A Standard Report

Basic report for mortgage purposes this is not a survey; it is a property inspection required by lending organisations to confirm that a property provides suitable security for mortgage purposes. This is the cheapest and most basic of reports. The report includes a valuation figure and re-build or reinstatement costs (for insurance purposes), as well as covering basic property details. The inspection is limited and a buyer should not rely solely on the information provided by a mortgage valuation when deciding whether or not to buy a particular property. 

The above is the base level valuation required to allow the lender to process an application. The following two are customer options allowing more in depth detail, but they are not required for the lenders purposes.

The Homebuyers Report

This is intended for conventional, residential properties e.g. houses, flats and bungalows, which appear to be in a reasonable condition and have not been subject to significant alterations since construction. The report is written in a standard format and is around 10 pages in length. It is more comprehensive than the standard valuation and focuses on essentials (e.g. urgent or significant defects and problems which may affect the value of the property). 

This report will enable a prospective buyer to make an informed decision on whether or not to proceed with the purchase and assess whether or not the property is reasonably priced. It will also assist to identify what decisions and actions should be taken before contracts are exchanged. The valuer will give their professional opinion on the particular features of the property that affect its present value and may affect its future marketability. The valuer can only comment on visible areas where access is obtainable.

A Building Survey

This is suitable for all residential properties and provides a full picture of their construction and condition, including the roofs, chimneys, walls, floors, ceilings, doors and windows. It is more comprehensive than a Homebuyers Report and does not follow a fixed format. It is likely to be needed if the property is, for example, of unusual construction, dilapidated, has been altered or where a major renovation or conversion is planned.

A Building Survey will provide advice on existing or potential problems, identify suitable remedial work and provide an estimation of costs. The surveyor will agree to comment on particular areas of concern, provided they fall within the surveyor's terms and conditions and within the guidelines laid down by the Royal Institute of Chartered Surveyors (RICS). The valuer can only comment on visible areas where access is obtainable.

If the valuer on any valuation has any major concerns, they can ask or recommend for a more in-depth report. The customer will need to arrange and pay for these reports. Most lenders will not lend on the property if these are not carried out. Here are the 4 main ones: -

TIMBER AND DAMP REPORT: If the surveyor sees signs of damp, they can suggest a Damp and Timber report to be carried out by a specialist.  If any work needed and subsequently carried out, a guarantee for at least 5 years is normally issued.

DRAINAGE REPORT: A Report to establish the condition of the drainage system. This could include a CCTV inspection. This is often asked for if there are trees in the garden near the property as the roots can get into and damage the drains.

TREE SURGEON REPORT: They may also ask for a tree surgeon report in the case of very large trees in close proximity to the property.

STRUCTURAL ENGINEERS REPORT: - A professional structural engineer should be instructed by the customer to investigate cracking. The cracking could be long-standing/historic or ongoing/progressive, which will affect the security and may warrant further information.

Valuations for new build properties are different as the house is not even built when most people ask for a mortgage to buy one. The National House Building Council issues a 10yr guarantee to any property built by one of its members. A certificate of this is held with the Title Deeds and can be confirmed by legal enquiry. The scheme has been called "Buildmark" since 1988. The Zurich Certificate is the equivalent of the NHBC Guarantee and is equally acceptable.

When someone is purchasing a “new build” property, it may not be necessary to have a valuation carried out at all. Providing the builders issue the property with an NHBC certificate or Zurich certificate – a valuation may not be required. This is the only instance when a valuation isn’t required. As the rebuild cost is not known, the property needs to be insured for the purchase price by the customer.

In summary the lender insists on just the basic valuation for normal house purchases. This is because they only need to know that the property exists and is adequate security for the loan. If the valuer has any concerns they will want this looked at in more detail.

Remember that it is “buyers beware” so if you have ant doubts get it checked out thoroughly.

Remortgage Valuations

This section assumes that you already understand the basic principles of property valuation for mortgage purposes, and merely concentrates on the differences between a purchase and remortgage valuation.

When you first buy a home you want to know if the property represents value for money and if there are any problems with it that you should be aware of. If though 5 years down the line you are looking to “Refinance” or “Remortgage” you do not have the same considerations.

All you will be looking to do is either move to a better rate to save money on your mortgage whilst perhaps consolidating some other debts. Or maybe you want to raise some extra capital for some reason, perhaps to buy a second property or pay for home improvements.

The “buyers beware” factor is not there for you. However the new mortgage lender still has their worries. I.e. is the property adequate security for the mortgage they are about to arrange for you.

This time it’s up to the lender to decide what type of valuation to have carried out. They have three main choices, which are,

Standard” valuation, the surveyor will inspect inside and outside the property.

Kerbside” they just inspect from outside. These are also referred to in the trade as “Drive By” or “Third Gear” valuations, where a busy valuer will just drive by the property and slow the car down (3rd gear) to have a quick look as he dash’s off to his next appointment. (All valuers will deny they do this)

 “Desk Top” For this no one goes to the property at all and it is just checked online against a data base of comparable property in the area.

The lender will normally make this decision based on the amount of loan you want in relation to the value of the property (LTV). So for instance if you want to borrow over 75% LTV, they will have a standard valuation done. 50%-75% then a kerbside may be sufficient, and up to 49% a Desk Top.

These are only guide lines, different lenders will have different lending criteria so check with your mortgage broker who will be able to let you know.

When the valuation comes back to the lender they will then make a lending decision based on the report. The report can throw up some issues, such as when the valuer thinks the property is worth less than you do.

Valuation Problems

What happens if the valuation comes back with a lower valuation than you were expecting? Well for purchases this can mean that price negotiations need to start again!

For remortgages this will change the loan to value ratio. In a worst case scenario  the lender may now not give you the remortgage figure you were hoping for.

It may raise issues that maybe the house has some potential problems, such as timber, damp, electrical, trees, drains etc. With a purchase you will expect the seller to either put these things right or at least meet the cost with a price reduction.

For really bad problems which will cost a lot of money the lender may impose a retention. This means that for example if the mortgage applied for was £80,000 and the cost of the work is estimated at £5,000 then they will only advance £75,000 with the remainder being released after the work has been carried out.