Mortgage valuations explained

What is a mortgage valuation?

When you apply for a mortgage, your lender will carry out a mortgage valuation or 'valuation survey' to check the property is worth what you're planning to pay for it.

A mortgage lender may also want to carry out a valuation if you're applying to remortgage, to check the property is worth what you've stated on the application.

A mortgage valuation is for the benefit of the lender. Its scope is limited, and it only provides information for your bank to understand whether the property will act as viable security for the loan you've asked for.

However, a mortgage valuation can also give you a rough idea of whether you're potentially paying too much or too little for a property.

• Find out more: how much is your house worth? 

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How do mortgage valuations work?

Lenders conduct property valuations in a number of ways.

Traditionally, a surveyor would usually have visited your property to compile a short report. However, these days surveyors are increasingly opting to value properties using recent sales data online and, if required, will drive past the property.

It's hard to predict which type of survey your property will be subject to.

According to the Royal Institute of Chartered Surveyors (Rics), the type of survey you get is driven by the lender's risk appetite.

This might be based on the type and construction of the property and whether there's anything that may cause an issue with lending.

For example, if the property you're planning to buy is made of a non-standard material such as concrete, the lender is more likely to instruct a surveyor to go and visit it.

The decision to do a physical visit could also be because a lender hasn't lent in the area before, or if it can't find enough information about the property online.

With more lenders now offering free valuations, it's increasingly likely you won't get a surveyor visit. High street lenders in particular have a wealth of information available to them online, which can help them assess the suitability of a property for mortgage purposes - and this helps keep costs down.

Regardless of the way the valuation is conducted, the lender will use the surveyor's professional opinion on the value of the property to make its final decision on what size of loan it will offer you.

Mortgage valuations vs house surveys

A mortgage valuation is not the same as a house survey, and you should never rely on one to confirm whether the property is in good enough condition to buy.

It's a brief visit for the benefit of the lender, and often doesn't involve anyone stepping inside the property.

In fact, even if you pay for the mortgage valuation you might not ever see the valuation report or find out what the surveyor has told the lender.

A home buyer's report or full structural survey is much more rigorous and can alert you to potential defects or other problems with a property before you buy.

Just bear in mind that a full structural survey doesn't include a mortgage valuation. Some home buyer reports do come with a valuation, but you should double-check the survey is acceptable to your lender, or you could end up paying for two.

• Find out more: house surveys explained

How much does a mortgage valuation cost?

A mortgage valuation typically costs upwards of £250, according to Money Helper, depending on the value and size of the property. However, many mortgage lenders try to entice new customers by offering one for free.

What happens after a mortgage valuation?

After a mortgage valuation, the surveyor will give their opinion on the value of the property to your mortgage lender.

If the surveyor agrees with the sale or remortgaging price your lender is likely to offer you the loan you've requested.

But if the surveyor suggests the price is higher than the property is really worth you might get a 'down valuation'.

Frustratingly, this could lead to your bank giving you a revised mortgage offer, which might scupper the whole purchase or remortgage.

What is a 'down valuation'?

A down valuation occurs when a surveyor decides a property is worth less than the agreed sale price, or proposed remortgage value.

Down valuations usually happen when house prices are out of sync with current market trends.

If house prices are falling at a faster rate than they are in other areas, or transaction levels aren't what they once were, there can be a gap between what estate agents and sellers believe a property is worth and the surveyor's opinion of its market value.

This can cause huge problems for your mortgage offer. For example, let's say you want to buy a £250,000 property and have a £25,000 deposit. You'll need a mortgage for 90% of the purchase price - that's £225,000.

But if the lender's surveyor decides the property is actually worth £200,000, it can throw all your careful calculations out of sync.

That's because if the lender offers 90% of the valuation price, you'll only be offered £180,000 rather than the £225,000 you need to secure the property.

Your deposit plus £180,000 would only give you £205,000, leaving you with a £45,000 shortfall - which for many could ruin the entire deal.

What do I do if my property has been down-valued?

If you receive a down valuation on the property you want to buy, the first thing to do is try and renegotiate the sale price with the seller.

A down valuation is a strong bargaining tool. If your lender doesn't think the property is worth what you had agreed to pay, chances are others will agree - meaning your seller could struggle to get more money from another buyer. Depending on their situation, they may also be keen to push the sale through even if it does mean less money.

If the seller doesn't budge, or you're remortgaging a property you already own, you may be able to challenge the valuation if you have robust evidence that the property is worth the amount you said it was. However, accepting a challenge on the valuation is at the discretion of the lender.

If you don't have any evidence that disproves the lender's valuation, you could potentially accept the new loan offer and try to make up the shortfall another way. This won't be a realistic option for most, though - so your last resort might be to try an alternative lender that uses a different independent surveyor, which may give a valuation closer to the sale price.

It's worth asking an independent mortgage broker for advice on this.

5 tips to avoid a down valuation

Down valuations can put a tremendous amount of strain on the already stressful process of buying a home or remortgaging.

To avoid receiving a down valuation as a seller or buyer there are some things you can do.

1. Research the property's value 

It's important to research the value of the property you're hoping to buy or sell. Look at how much properties in the area have actually sold for over the past three to six months, so that you get an idea of what a realistic price should be.

2. Get an expert opinion 

If you're selling, you should invite three local estate agents who have recently sold properties similar to yours to value your home. They can take a look at the property, offer insight into local market activity and use recent experiences they've had with similar properties to give you a suggested price.

It's likely you'll end up with three different figures from the three different agents, but don't just go with the highest sale price. A good rule of thumb is to go with the middle valuation or calculate an average.

3. Check with your lender 

If you're hoping to sell your home, it's possible to check what property value your existing lender has on file. This can help guide your decision on how much to put your property on the market for.

4. Make a realistic offer 

If you're a buyer, you should use your research to make a realistic offer on a property. So if the property is on sale for £500,000 but you've seen similar properties sell for £425,000 in the area, don't be afraid to offer under the asking price - it could save you a lot of trouble later on.

5. Find the right mortgage provider 

If you're going for an unusual or risky property, such as a flat above a shop, it's worth seeking out a provider that specialises in these kinds of properties.

A whole-of-market mortgage broker should have access to every available mortgage deal so it can recommend suitable lenders for your financial circumstances and the type of property you're after.