John Fitzsimons
Knowing what the average home is worth is only so useful. There will be times when you need an idea of how much a specific property is worth and that’s where a house valuation comes in.
When you apply for a mortgage your lender will need an official valuation of the property you want to buy before it approves the loan.
More informal valuations can be conducted by your estate agent, for example, to agree on the purchase price of a property you are selling or to find out how much value any renovations have added to your home.
What is a house valuation?
An official house valuation is when a chartered surveyor attends a property to calculate a ‘market valuation’ of the property.
They will take into account factors such as the age of the building and what it is made from, the structural condition, whether there are any serious defects, the location of the property and the sale price of comparable homes nearby which have recently changed hands.
While these valuations usually take place in person, many lenders now operate ‘desktop’ valuations where the surveyor calculates a value without actually visiting the property. This may be because access to the property isn’t possible, such as with new-build properties that have not yet been finished. They have also been used more frequently during the COVID-19 pandemic.
When do I need a house valuation?
You don’t need to get an official valuation to set the purchase price of a house you are selling. Instead, your estate agent will be able to give you an informal valuation and suggested sale price. This will be based on an inspection of the property and their knowledge of the market.
A property will only need to be formally valued when you want to borrow against it. This will likely be when you want to buy the property in the first place, but also any time you want to refinance and move to a new mortgage deal.
That’s because the value of the property will play a key role for the mortgage lender in determining whether to offer you a mortgage and, if so, how much they are willing to lend.
All mortgage lenders calculate the interest rates they offer based on what is called the loan-to-value (LTV), which is essentially how the size of the loan compares to the overall value of the property. Let’s say that you agree to a purchase price of £200,000 for a property and have £20,000 in savings to use as a deposit. That would mean you needed a mortgage of £180,000, or 90% of the purchase price.
The lender will then want to send a valuer to look at the property and ensure that it really is worth that much before agreeing to give you the money for the purchase.
The size of that LTV will be factored into the interest charged on your loan. Essentially, the higher the LTV, the higher the interest rate will be, while you will also have fewer options to choose from.
It’s a similar process when you want to remortgage. The lender will send a valuer to look over the property and confirm what it is likely to be worth so that they can decide whether to provide you with a remortgage offer.
However, you can enlist a chartered surveyor to value your home at any time.
» MORE: Current mortgage rates
What does a house valuation cost?
You do not need to pay an estate agent for an informal valuation – they will want to sell your home for you so will share this knowledge as part of the service.
The cost of formal valuations by chartered surveyors will vary according to the firm you use and the property in question, but you can expect to pay between £150 and £1,500.
However, you may not have to pay this fee. Many lenders will agree to pay for the valuation – as well as any legal fees – as an added perk for their remortgage deals, so it’s worth including these in any comparison of different mortgage deals.
» MORE: What to consider when remortgaging
Who carries out the house valuation?
The mortgage lender will appoint a chartered surveyor firm that it trusts to carry out the valuation when you’re looking for home finance, so you don’t need to worry.
However, you are free to arrange a valuation of your own, and a good place to start is the ‘find a surveyor service’ from the Royal Institution of Chartered Surveyors.
What to do if your house is valued too low
There will be occasions when the value provided by the surveyor is lower than you hoped for, and this can cause issues. If you are buying a property and the lender thinks the property is worth less than the agreed price, then you may need to produce a larger deposit to make up the shortfall.
Or if you are remortgaging, it may mean that you have to select a different mortgage at a higher LTV band, which will mean higher monthly repayments than you were expecting.
However, you can challenge the valuation if you think it is too low. You will need to provide some sort of evidence for why you think it’s wrong, such as highlighting comparable property sales or flagging up less obvious attributes, such as an extension, in the case of a desktop valuation.
» MORE: Best mortgage lenders
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