This article talks about the factors that influence house valuation, leading you to a successful remortgage process. Read about the many types of UK mortgages to fully understand the mortgage landscape in the UK.
Why is a house valuation needed for a remortgage?
Remortgaging involves replacing your existing mortgage with a new one, either with your current lender or a different one.
this process, accurately determining your property's value is the most important factor. This valuation establishes the current market value of your home.
Lenders require this to calculate the loan to value (LTV) ratio- the key in determining the terms of your new mortgage.
This value influences the interest rates offered and the overall mortgage deal. A reliable valuation ensures your mortgage application reflects the true value of your property.
We have a more detailed article on tips about how to make a successful mortgage application.
Impact of property value on remortgage terms
The value of your property directly affects the terms of your remortgage. A higher valuation can lead to better mortgage deals, with lower interest rates and more favourable terms.
Conversely, if your property is valued lower than expected (known as a down valuation), you may face less attractive mortgage options.
This can result in higher interest rates or a requirement for a larger deposit. Understanding this impact empowers you to make informed decisions during the remortgage process.
Read our guide about the timeline of the remortgage process.
Methods of obtaining a house valuation
Using online valuation tools
Online valuation tools provide quick estimates of your property's value. They analyse data like recent sales in your area, general market trends, and specific property features. These tools are user-friendly and offer a starting point for understanding your home's worth.
However, they lack the nuanced understanding of local market conditions that a professional can provide. Online valuations might not account for unique property features or recent market shifts, and may lead to inaccurate estimates.
Seeking valuations from local estate agents
Local estate agents offer more personalised valuations than online tools. They bring expertise in local market trends and an understanding of how your property's specific characteristics impact its value.
Estate agents visit your property, considering factors like condition, renovations, and local demand. Their valuations often aim to set a competitive market price, which might differ from a mortgage lender's assessment.
Remember, estate agents might overestimate to win your business or understate to facilitate a quick sale.
The role of educated guesses in the valuation process
Educated guesses in property valuation involve homeowners estimating their home's worth based on their knowledge and market observations.
This method is cost-effective and provides a rough idea of your property's value. It requires understanding recent sales of comparable properties, local market conditions, and any home improvements made.
However, educated guesses lack the precision of professional valuations and can lead to significant discrepancies in the actual value assessed by a lender or surveyor.
Down valuation in remortgaging
What is down valuation and how does it affect your remortgage?
Down valuation occurs when a mortgage lender assesses the value of your property to be lower than your expected figure. This evaluation significantly impacts your remortgage plans.
Lower property value affects your loan-to-value (LTV) ratio, leading to less favourable mortgage deals.
A high LTV ratio often attracts higher interest rates and could limit your options for alternative lenders. It's a straightforward reality: if your property is worth less, lenders see it as a higher risk.
If the lender has conducted a desktop mortgage valuation, you have the option to request a physical property valuation. This allows you to review the mortgage valuation report, which will detail the reasons for any downward adjustment in valuation.
Down valuations are not personal judgements but reflect a cautious lending environment and current house prices. You might find that recent comparable sales in your area have set new benchmarks that differ from your expectations. You must comprehend how these factors intertwine, impacting your proposed remortgage value.
Dealing with down valuation
When faced with down valuation, the first step is reassessing your remortgage options. Consult with a mortgage broker; they can offer insights and mortgage advice tailored to your situation. They might suggest a remortgage deal with your existing lender or explore options with an alternative lender more amenable to your property's assessed value.
Another approach is investing in minor improvements or updating your valuation with more recent sales data. This can sometimes influence a revised valuation. Mortgage lenders often base decisions on the most current information. Providing updated data might sway their assessment.
It's also possible to challenge the valuation. However, this requires compelling evidence, such as recent sales of comparable properties or missed features in the initial valuation. A mortgage adviser or a qualified surveyor can assist in this process, ensuring you present a robust case to your mortgage provider. Also read our article about whether you need a solicitor to remortgage.
In some cases, accepting the down valuation and adjusting your remortgage plans may be the best move. This might mean higher monthly repayments or postponing remortgaging until property values improve. While not ideal, it's a decision made with a clear understanding of your property's market stance and mortgage landscape.
Costs of different valuation methods
When remortgaging, homeowners must consider the cost of house valuation. Various methods exist, each bearing its own price tag.
Physical valuation
The traditional route, a physical valuation by a qualified surveyor, incurs the highest cost. This comprehensive assessment provides a detailed valuation report but can be expensive.
Comprehensive surveys are mostly conducted on properties that are identified or suspected to have defects. They encompass all aspects covered in level 1 and 2 surveys, with additional scrutiny of the entire property, including electrical systems, foundations, cellar, attic, and more. The surveyor usually dedicates an entire day to thoroughly assess the property.
Costs generally range from £700 to over £2000, depending on the property's value.
Desktop mortgage valuation
A desktop valuation carried out remotely using property data, offers a more cost-effective alternative. While less expensive, it might not capture recent improvements or unique property features. Some lenders offer free valuations, especially for automated desktop valuations, as part of the remortgage package.
Mortgage brokers often recommend comparing costs across different valuation methods. This comparison ensures you choose a method that aligns with your budget and meets the lender's requirements.
The fee for a desktop valuation normally ranges from £65 to £200.
Drive-by valuations
Drive-by valuations stand as a middle ground between physical and desktop valuations. In this approach, a valuer assesses your property from the outside, possibly complementing this with online market data.
This method can be more affordable than a full physical valuation and is quicker, though it provides less detail.
Drive-by valuations are suitable when external features significantly influence a property's value. However, they might not capture the condition or improvements made inside the property.
This method is a viable option if you need a quicker and less expensive valuation that acknowledges the property's external appeal and locality.
The price of the survey can range between £150 and £1,500.
Choosing the right remortgage valuation method
How does valuation's cost affect your property
You must note that the valuation cost doesn't necessarily reflect the accuracy or value of the property. Some homeowners opt for a full structural survey, especially if they suspect underlying issues.
While more expensive, this comprehensive evaluation can provide peace of mind or uncover issues that might affect the property's value.
Ultimately, the choice of valuation method hinges on balancing cost, accuracy, and the impact on your remortgage terms.
Mortgage lenders and brokers can offer guidance, helping you understand how these costs influence your remortgage valuation and the associated terms.
When choosing between types, consider the uniqueness of your property and your need for precision versus speed and cost. A unique or extensively modified property may benefit more from a physical valuation, ensuring all its features are adequately considered.
Understanding the valuation report and lender's decision
Upon completion of the valuation, you receive a mortgage valuation report. This document outlines the valuer's estimation of your property's value and, in some cases, highlights any major issues that could affect its marketability or value.
The lender uses this report to decide on your remortgage application.
Understanding how lenders interpret valuation reports can help you anticipate their decisions and prepare accordingly. You can discuss the report's findings with a mortgage broker to explore your options and understand how the valuation influences your remortgage terms.