Mortgage valuation is a crucial step in the process of buying a home in the United Kingdom. It is used to evaluate the value of a property, which is then used to determine how much a lender is willing to lend to a borrower. Let’s take a closer look at what a mortgage valuation is, how it works, and why it is important.

What is mortgage valuation?

A mortgage valuation is an assessment of the value of a property that is being considered for a mortgage loan. It is typically conducted by a professional valuer on behalf of the lender and is used to determine the property’s worth in relation to the loan amount being requested. The mortgage valuation is an integral part of the mortgage application process and is used to ensure that the lender is not lending more money than the property is actually worth. For any mortgage advice and queries contact our Local experts for a free property valuation today.

How does it work?

The process of a mortgage valuation begins with the lender arranging for a valuer to visit the property in question. The valuer will typically be a member of a professional body such as the Royal Institution of Chartered Surveyors (RICS) and will have a good understanding of the local property market.

They will usually visit the property and assess its value based on a number of factors like the property’s age, layout and any improvements or renovations that have been carried out. Any planning permission or building regulations that have been granted for the property will also be taken into account. Once the valuer completes the assessment, they will prepare a report that is sent to the lender. The report will include the valuer’s assessment of the property’s value, as well as any potential issues or risks that they have identified.

The lender will use the mortgage valuation report to determine the amount of money they are willing to lend to the borrower. The report will also be used to determine the loan-to-value (LTV) ratio, which is the amount of the loan in relation to the value of the property. The LTV ratio is used to determine the size of the deposit that the borrower will need to put down. If the valuation is lower than the amount the borrower is looking to borrow, the lender may offer a lower loan amount or require the borrower to provide a larger deposit.

A mortgage valuation is solely for the benefit of the lender only and the borrower will not receive a copy of the report. Usually, a mortgage valuation is confused with a home survey, but in reality, they are completely different. This report is more detailed and is typically carried out by a surveyor on behalf of the buyer. It provides more information about the property, including a more detailed assessment of the condition of the property, any repairs or renovations that may be required, and any potential hazards or environmental issues that may affect the property’s value. Whereas a mortgage valuation is less detailed and is carried out solely to assess the value of the property and assess the risk of lending on the property. However, if the borrower is concerned about the condition of the property, they can arrange for a home survey to be conducted at their own expense.

The value of the property can change over time due to factors such as market conditions and changes to the property itself. It’s important to remember that a mortgage valuation is only a rough estimate of the property’s value and it is not a guarantee that the property will be worth that amount in the future.

Lenders will not lend money to purchase a property until and unless they know the market value and the property’s condition. This is mainly because a property is being used as collateral for the mortgage and the lender wants to ensure that the property will be worth enough to cover the loan in case the borrower defaults on the mortgage. The valuation is also used to assess the borrower’s ability to repay the loan. The lender will take into account the borrower’s income, credit history, and any other relevant factors to determine whether the loan is affordable for the borrower.

Generally, the valuation cost is usually paid by the borrower, although some lenders may include it in their mortgage offer. The cost can vary depending on the size and location of the property, as well as the type of valuation that is being carried out.

Decisions about value and mortgage financing are made independently of one another. The lender will typically issue you a mortgage offer if they are satisfied with both. Mortgage valuations for properties used for rental purposes will also include an anticipated or possible “rental value” based on the going rate for rent in the neighbourhood. This aids the lender in determining the LTV ratio, or loan amount, for a buy-to-let mortgage.