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What is a mortgage valuation?

A mortgage valuation is a specific assessment that helps a mortgage lender confirm the property’s value and decide whether it’s suitable security for the loan you’ve applied for. Your lender will usually arrange a mortgage valuation.

What is a mortgage valuation used for?

Alongside confirming the property’s value and suitable security for the loan, a mortgage valuation helps the lender work out the loan-to-value (LTV) ratio. The LTV determines the mortgage rates you are eligible for.

Remember – a mortgage valuation is for the lender’s purposes only (not on your behalf). 

A mortgage valuation is different from a property valuation or appraisal (typically done by an estate agent), which advises the owner on the potential market price and how much they should list it for.

What does a mortgage valuation involve?

Mortgage valuations are completed by qualified surveyors or calculated using an Automated Valuation Model (AVM). Your lender will arrange for this to happen. 

The surveyor may not need to visit the property to carry out the valuation, and they can often be done within 1 to 2 weeks. 

The lender will then use the mortgage valuation to help decide if the property is a suitable security for the loan you’ve applied for.

A valuation and a mortgage lending decision are independent of each other. Once the lender is happy with both, they will usually make you a mortgage offer. 

Mortgage valuations on buy-to-let properties will also include an estimated or potential rental value, based on rents achieved in the area. This helps the lender calculate the lending amount, or LTV ratio, on a buy-to-let mortgage.

What might a lender need from you?

For most standard properties, you won't need any additional documents. However, in some scenarios, the following might be requested:

New Home (Structural Defects) Warranty

Sometimes, a lender may ask for a New Home Warranty if the property is under 10 years old or has been extensively renovated or converted. The warranty is provided by the developer or bought by the original homeowner. It offers cover for the cost of repairs or remedial works needed, as a result of structural defects in new or converted buildings. 

External Wall System (EWS1) form

An EWS1 form is completed by a qualified professional, following a fire safety assessment of the building’s external wall system, such as cladding.

The surveyor, undertaking the mortgage valuation, decides whether an EWS1 form is needed. Usually, the building owner handles obtaining the EWS1 form. 

The EWS1 shows whether the cladding is considered a fire risk. Where a fire risk is found, HSBC will consider lending on flats in England with suitable remediation schemes and where leaseholders are protected under the Building Safety Act. 

Where this risk is already known, an EWS1 report is not needed.

What happens if the mortgage valuation is less than the property price?

Sometimes, a mortgage valuation is less than expected. If it affects the amount you can borrow or the rates available, it’s referred to as a down valuation. 

The mortgage lender may reduce the amount they are willing to lend you. You may also not be able to borrow at the same interest rate. 

In some cases, lenders let you challenge the outcome of the valuation. At HSBC, you may be able to challenge a valuation amount if the valuation difference is 20% or more and your mortgage rate or amount is affected. 

How much does a mortgage valuation cost?

Mortgage valuation fees can vary, depending on the type of property. Some lenders, including HSBC, may not charge this fee on certain mortgage deals.

What is a home survey?

A home survey looks at the condition of a property to flag any potential problems for the buyer. Ideally, you should arrange for a home survey to be completed before you buy. You can choose the type of report you like, depending on how much detail you need. 

Visit the Royal Institution of Chartered Surveyors (RICS) website for more information and to find a surveyor near you

Buyers in Scotland can also request a free Home Report from the seller, which includes an energy performance certificate, a property survey, and a questionnaire. 

Depending on the age and condition of the property, some lenders may ask for specialist reports, such as damp, timber, or drain inspections.

Things to keep in mind

Don’t rely on a mortgage valuation when buying a property

A mortgage valuation is based on a limited inspection of the property for lending purposes only. Often, no physical inspection of the property is required. 

Ideally, you should get a home survey done to flag any issues. A home survey will report on the condition of the property and let you know of any essential (and potentially costly) repairs needed. 

Mortgage lenders have their own criteria

Some lenders may not accept your chosen property as suitable security for a mortgage, such as a home built from non-standard materials, like pre-fabricated concrete or wood. It’s not always possible to confirm if a property meets the criteria until a mortgage valuation.

You’ll likely need buildings insurance if you’re buying a home

Buildings insurance can protect you against the cost of repairing or rebuilding your home, should it get damaged by an insured risk. You need to have buildings insurance in place if you have a mortgage. You can take this out with a provider of your choice.