When you’re applying for a mortgage it’s important to understand what a property survey is and the part it plays in getting a mortgage.
There are different types of surveys available depending on your needs and budget, as well as other factors such as how old or new the property might be.
In this article we will answer the question “Do you need a survey to get a mortgage?” while looking at what a mortgage related survey involves, its importance when getting a mortgage, how to choose the right survey for you and common problems that may arise during the process.
When is a survey not a survey?
The world of finance is full of jargon and abbreviations, that will be unfamiliar to many people.
And a ‘survey’ is no exception.
A property survey is known to be an assessment of a particular house or flat that determines whether it is structurally sound. But there are different types of ‘survey’ you need to be aware of.
These are explained in more detail below but the different ones are:
- Mortgage Valuation
- Condition Report
- HomeBuyer Report
- Building Survey
- Market Valuation
When you apply for a mortgage the lender will always need a Mortgage Valuation on the property that you wish to buy. This is not a survey and anything else you choose is optional.
Do you need a survey to get a mortgage?
No. There is no legal requirement for you to have a survey done.
But you will need to pay for a Mortgage Valuation which will be for the benefit of the lender.
While a mortgage valuation may give you a basic idea of the property’s condition, it is not a detailed survey and may not identify any hidden issues or defects.
Therefore, while a survey is not a requirement to obtain a mortgage, it is highly recommended that you commission a survey or a more detailed HomeBuyer Report or Building Survey to identify any potential issues with the property before you purchase it. This can help you make a more informed decision about whether the property is worth the investment, and can also help you renegotiate the purchase price or ask the seller to carry out any necessary repairs before you complete the purchase.
It’s particularly important for older properties to be surveyed. Properties such as castles and converted churches will have been built over 100 years ago and need a specialist opinion on the structural integrity.
Who organises a survey when buying a house? – Read to find out.
What is a mortgage valuation?
A mortgage valuation is a basic assessment of a property’s value that is carried out by a professional valuer on behalf of a mortgage lender. The purpose of the mortgage valuation is to determine the property’s market value and suitability as security for the loan.
During the mortgage valuation, the valuer will typically carry out a visual inspection of the property, taking note of its size, condition, and any significant features or issues that may affect its value. They will also consider factors such as the local housing market and recent sales of comparable properties in the area.
The outcome of the mortgage valuation will be a report that provides an estimated value for the property, as well as any observations or concerns the valuer may have. This is used by the mortgage lender to determine the maximum loan amount they are willing to offer, as well as the interest rates and other terms of the mortgage.
The loan-to-value (LTV) ratio represents the amount of money you wish to borrow in comparison to your property’s value and can impact your eligibility for certain mortgage rates.
It is essential to keep in mind that a mortgage valuation is conducted solely for the lender’s purposes and not on your behalf.
An estate agent’s appraisal or valuation is distinct from this. These are provided by estate agents with the goal of advising property owners on what price to list their property on the market for.
How long do they take?
Generally, a mortgage valuation can take anywhere from a few minutes to an hour, depending on the size of the property and access. An automated valuation, for example, which relies on data and algorithms, can be completed quickly, sometimes within minutes, as there is no requirement to actually visit the property.
A physical inspection, on the other hand, can take longer as the valuer will need to examine the property and may need to arrange access with the homeowner or estate agent.
The purpose of a basic mortgage valuation is to confirm that the property exists and to establish its value. The Valuer will be able to see obvious structural problems but will not spend time investigating for potential issues.
Who pays for it?
The cost of the mortgage valuation is paid by the borrower and forms part of the initial mortgage costs.
The amount will be confirmed on your mortgage illustration and the cost will be affected by the specific lender and the property value.
As a marketing exercise, it’s possible for a lender to pay for the valuation as an incentive to encourage customers to take out a loan with them.
What happens if the property is down valued?
The Valuer who inspects the property will be working for the lender and must confirm to them the current value of the property. In the majority of cases, they will agree with the price you are paying for it (the purchase price).
However, sometimes properties are ‘down valued’ and this means that the Valuer disagrees with the purchase price figure, and reports back to the lender with a lower valuation.
The lender will base your mortgage on the purchase price or valuation, whichever is the lower.
This often means that the lender then has to adjust the amount they can lend you as the loan to value LTV percentage has changed.
You can use the valuation report to try and renegotiate the purchase price. Otherwise, if you still wish to carry on you need to come up with the extra cash by way of an increased deposit.
EXAMPLE
Let’s say you’re buying a property for £375,000 and you’ve applied for a mortgage of £300,000 (80% loan-to-value ratio) with a lender. The lender carries out a valuation of the property and determines that it’s worth only £360,000.
This means the lender will only be willing to lend you a maximum of 80% of the property value (£360,000), which is now a mortgage of £288,000. This is a shortfall of £12,000 compared to the original mortgage amount you applied for.
The consequences of this down valuation could be significant. If you don’t have the extra £12,000 to make up the difference, you may have to either renegotiate the purchase price with the seller or look for a different property.
Even if you’re able to negotiate a lower price, you may still end up with a higher loan-to-value ratio and therefore a higher interest rate on your mortgage.
Alternatively, you could try to find a lender who is willing to lend you the full amount, but this may not be easy and could also mean higher interest rates and fees.
Is a mortgage valuation the same as a survey?
No, a mortgage valuation is NOT a survey.
Instead, it is a basic assessment of a property’s value. The primary goal of a mortgage valuation is to determine the property’s worth and whether it is adequate security for the loan. The lender will arrange for one of their approved surveyors to carry out this assessment.
Other surveys and inspections
Mortgage Valuation
This is an assessment of the property’s value conducted by a surveyor on behalf of the lender to ensure that the property is adequate security for the mortgage loan.
It is a basic assessment of the property’s value and is not considered a survey.
Condition Report: Level 1
This is a basic survey that provides an overview of the property’s condition, highlighting any urgent defects and identifying any areas that may require attention.
It is typically suitable for newer properties or those in good condition.
HomeBuyer Report: Level 2
This is a more detailed survey that provides a thorough analysis of the property’s condition, including any visible defects and potential issues that may require attention in the future. It also includes a valuation and a reinstatement cost assessment.
This report is typically recommended for properties that are older or in need of repairs.
Building Survey: Level 3
This is the most comprehensive type of survey and is typically recommended for older properties or those with unique features. The full structural survey provides a detailed analysis of the property’s construction, identifying any defects or issues that may require attention.
The report also includes advice on potential repairs and maintenance that may be required, as well as an estimation of the property’s value.
Market Valuation
This is an assessment of the property’s market value conducted by a qualified valuer. It is typically used for sale or purchase purposes, and is based on factors such as location, size, condition, and comparable sales in the area.
Remortgage Valuation
Lenders are more relaxed about the property condition for remortgages. This is because you already own the property.
In these situations the lender may use a desktop valuation or an Automated Valuation Model (AVM). Neither of these require the property to be physically inspected.
CONTACT A MORTGAGE BROKER
If you are ready to take the next step then we can put you in touch with a fully qualified independent mortgage broker.
Common problems that may arise during the process and what to do about them
There are a few common problems that may arise during the mortgage valuation or survey process.
These include:
The property being down valued
This means that the valuer disagrees with the purchase price figure, and reports back to the lender with a lower valuation. You can use the valuation report to try and renegotiate the purchase price. Otherwise, if you still wish to carry on you need to come up with the extra cash by way of an increased deposit.
Mortgage retention
A mortgage retention is not very common and if applicable will be included in your mortgage offer. It basically means that the surveyor thinks your property is suitable but there’s some work needed before the mortgage amount you asked for can be approved. This means the lender will hold back some money on completion day and will only release this once the works have been done.
Unforeseen defects or repairs required
If these are discovered during a more comprehensive survey such as HomeBuyer Report or Building Survey then it is important for you to have them investigated further before committing to buy a property. It is also important for you to check your seller’s rights and obligations in terms of repairs or remediation based on the survey findings.
It’s not uncommon for additional reports or investigations to be needed subsequent to the initial survey. These will be more specialist in nature: damp survey, electrical report, drain survey etc. Sometimes the report will conclude that a mortgage cannot be granted as the property is uninhabitable. Common reasons for this could be: no bathroom and/or kitchen, extensive damp or structural problems.
Non-standard construction
It is unusual for this to be discovered at the valuation stage, but not impossible. From the outside many houses look like they have been built using the normal method of brick or block walls, with a tiled roof. But there are a number of houses that are built using a frame system, which can be hidden by external brickwork and rendering. The two main ones are steel framed houses and timber framed houses.
Steel frames are rarely used for commercially built residential homes, but timber frames are growing in popularity amongst house builders.
When buying a repossessed house it can be difficult confirming the type of construction, as you won’t be able to ask the owner.
Some lenders don’t lend against these types of construction. and so if this is discovered during the valuation phase the lender will refuse the application. Specialist property mortgages are available for non-standard construction properties.
Delays
Survey delays can be frustrating, but it is important to bear in mind that the process takes time and needs to be done properly to ensure that all information has been considered before a loan is granted. The best thing you can do here is stay organised and communicate with your lender and solicitor regularly throughout the process.
Legal issues
The role of a conveyancer involves looking at many different legal aspects of a property and the associated contracts. Unsurprisingly, when legal queries do arise, they can dramatically delay progress. For a leasehold property, the lender will require a minimum number of years left to tun. And while most freehold houses are straightforward, lenders are careful when a flying freehold mortgage is needed.
Do you need a survey for a new build?
Mortgage lenders will always want to conduct a basic mortgage valuation, even for new properties.
As part of the broader valuation process, the Valuer will ask the builder for a fully completed UK Finance Disclosure Form, floor plans of the property, and confirmation of the property’s location and surroundings within the development.
Additionally, the Valuer will request information about comparable on-site sales transactions.
Although new build homes are required to adhere to current building regulations, the local authority building control inspectors primarily focus on the structure and regulatory requirements of the property, rather than its liveability.
To ensure that the property is constructed to a high standard and that there are no concealed issues, it is prudent to engage a surveyor to conduct an independent level 3 building survey.
However, as with other properties, the choice is always yours.
A survey for a new build needs to take place after completion of the building works. During this appointment, the surveyor will examine both the internal and external areas of the building to assess its condition and check if it meets all relevant regulations. They will also look at any additional work that might be required before occupation can start. This could include electrical installation certificates or local authority sign offs.
You may have heard about snagging inspections which are often confused with surveys but are in fact two different things. Snagging inspections take place during or after completion of construction works and focus on identifying defects, while surveys look at bigger issues such as structural integrity and compliance with legislation.
We would always recommend a snagging report takes place before legal completion and moving in.
Buying a new property also means that the mortgage process is a bit different. We have a dedicated page for new build mortgages which explains the various stages.
FREQUENTLY ASKED QUESTIONS
Who pays for the survey?
You will pay for the lenders valuation report as part of the application process.
At what stage is a mortgage survey done?
This will differ between lenders. A valuer is normally instructed once the lender has successfully completed some initial underwriting and is therefore happy to continue the application process.
Do you apply for the mortgage before or after a survey?
You are free to pay for your own survey at any time. The lenders valuation can only be instigated once you have applied for a mortgage on a specific property.
What kind of survey do you need?
This will depend on the condition of the property and your own personal preference. There are various levels of survey available ranging from basic mortgage valuations to more detailed building surveys.
Do you always need a survey?
No, but it is advisable to get a survey done on any property you are looking to buy. The report will provide you with crucial information about the condition of the property, any potential issues and advice on how to proceed.
If you are buying for cash then there is no requirement for any type of survey or valuation.
What does retention mean?
A mortgage retention refers to an amount of money that is held back by the lender until certain conditions have been met by the borrower or property seller.
For example, a lender may require a retention if there are issues with the property that need to be addressed, such as a damp problem or a defective roof.
I need more information about surveys
Our Property Survey Guide explains what the different types of surveys are and how they work.
