Your Remortgage Valuation Explained
Remortgaging can be a good option for homeowners who want to switch to a new mortgage deal or release equity from their property. However, before remortgaging, the lender will need to carry out a valuation of the property to ensure it is worth the amount being borrowed. In this article, we will discuss what remortgage valuation is and how it works.
A remortgage valuation is when your lender (either your current one or a new one) checks that your home is worth what you say it is before approving you for a new deal.
Just like when you took out your mortgage the first time around, a property valuation for your remortgage isn’t really for your benefit – it’s for the benefit of the lender. In that way, it’s different from a home buyers survey, which is designed to show you problems with the property before you buy.
They want to make sure your property is worth enough as security for the mortgage they’re about to offer you. Essentially, they want to know that if you fail to keep up with your repayments, they can repossess your home and sell it to get their money back.
How often do house prices change?
House prices can change frequently, and the frequency of these changes can vary depending on various factors such as the local housing market, economic conditions, and demand-supply dynamics. In some cases, house prices may experience daily fluctuations in highly active and volatile markets. However, in more stable markets, the price of your home might change less frequently, with gradual shifts occurring over weeks, months, or even years. It's important to monitor the housing market regularly and stay updated on local trends if you're interested in tracking changes in house prices.
The remortgage valuation process explained
The remortgage valuation process typically involves the following steps:
Selection of the valuation method:
The mortgage lender will decide on the type of valuation to be conducted based on factors such as property type, location, and risk. It can be either an in-person valuation or a desktop valuation to help determine the property value.
If an in-person valuation is chosen, a qualified surveyor will visit the property to assess its condition, size, features, and overall value. They will take into account factors like location, market conditions, and any unique characteristics of the property. The surveyor will then provide a detailed report to the lender.
In a desktop valuation, the lender uses recent sales data of similar properties in the area to estimate the value of the property. This method is often used for standard properties in low-risk areas where a physical inspection may not be necessary.
Sometimes, the surveyor may conduct a brief "drive-by" valuation, where they assess the property from the outside without entering or inspecting the interior.
The surveyor prepares a valuation report that includes their professional opinion on the property's worth. This report helps the lender determine the loan-to-value (LTV) ratio and assess the risk associated with the mortgage. Your LTV is the size of your mortgage compared to your property’s value. So if your home is worth £200k and your outstanding mortgage is £150k, your LTV is 75%. In general, the lower your LTV, the lower your interest rate – and the wider your choice of mortgage deals.
The lender reviews the valuation report along with other factors such as the borrower's creditworthiness and affordability. Based on these considerations, they make a decision on whether to approve the remortgage application and the terms of the new deal.
It's important to note that the remortgage valuation is primarily conducted to protect the lender's interests by ensuring that the property offers sufficient security for the loan. While the valuation report may be shared with the borrower upon request, its main purpose is to assist the lender in making an informed lending decision.
How much does a remortgage valuation cost?
The cost of a remortgage valuation is determined by the size and value of your property, with fees typically ranging from £250 to £1,500. Generally, you are responsible for covering the valuation expenses unless you qualify for a free valuation as part of your remortgage package, which is often available. It's important to understand that a remortgage valuation differs from a comprehensive home buyer's survey, as it primarily serves the lender's interests rather than providing detailed information on the property's condition or necessary repairs. The valuation report is usually concise, spanning only 2 to 3 pages, and it may not be readily accessible to you, although you can inquire about it as some lenders may choose to share it while others may not.
In the UK, free valuations are a common offering provided by many lenders as an incentive to attract borrowers. A free valuation means that the cost of the property valuation is covered by the lender, relieving the borrower of the financial responsibility.
With a free valuation, the lender arranges for a qualified surveyor to assess the property and determine its value. This valuation helps the lender determine the loan-to-value ratio and assess the risk associated with the mortgage. While the valuation is conducted for the lender's benefit, it provides the borrower with an estimate of the property's current worth.
It's important to note that although the valuation itself may be free, there may still be other fees involved in the remortgage process, such as arrangement fees, legal fees, or administration charges. It's advisable to carefully review the terms and conditions of the remortgage offer to understand all associated costs and benefits.
Overall, the availability of free valuations in the UK remortgage market can provide borrowers with cost savings, making it an attractive option when considering switching lenders or obtaining a new mortgage deal.
What happens after a remortgage valuation?
Regardless of whether the valuation is conducted through a desktop analysis or an in-person visit, the lender's lending decision is typically influenced by the expert opinion of the surveyor. If the surveyor's assessment aligns with the property value stated in your mortgage application, it increases the likelihood of the lender offering you the requested borrowing amount. However, there are instances where the surveyor may differ in their evaluation of the property value compared to your own assessment.
What if my remortgage valuation is too low?
If the valuation conducted by the surveyor determines that the value of your property is lower than your initial estimate, it is referred to as a "down valuation." A down valuation can be frustrating, especially if you intended to remortgage in order to access funds for home improvements or renovations. For instance, if you believed your home was valued at £220k with a mortgage of £150k, resulting in £70k of equity, you could potentially increase your mortgage to £170k and borrow £20k. However, if the surveyor's valuation indicates a lower value of £200k, your equity would decrease to £50k. While you may still be eligible to borrow the £170k based on the lender's affordability criteria, it would result in a higher loan-to-value ratio, leading to a higher interest rate and increased monthly repayments.
What if I disagree with my lender’s valuation?
While it is possible to challenge your new or the valuation of your existing lender if you disagree with it, the process can be challenging. The acceptance of an appeal is at the discretion of the lender. If they do consider your appeal, you will need to provide substantial evidence to support your initial valuation. This typically involves submitting at least three examples of recently sold properties that are similar to yours in terms of location and features. It's important to note that currently listed properties cannot be used as evidence. If you find yourself in a situation where you disagree with your lender's valuation, you may benefit from seeking assistance from a mortgage broker who can help you navigate the process and, if necessary, find an alternative lender who may provide a more favorable valuation.
Overall, remortgage property valuation is a necessary process when remortgaging a property. It determines the property's current value and the maximum amount that can be borrowed or released as equity. Working with a reputable mortgage lender and seeking mortgage advice from a financial advisor can help ensure the remortgage process is successful and beneficial.
Frequently asked questions
1. Are estate agents involved when getting the property valued?
Estate agents are typically not directly involved in the process of getting a property valued for a remortgage. The responsibility for the valuation lies with the lender, who will usually appoint a qualified surveyor to assess the property's value.
The surveyor is an independent professional who specializes in conducting physical property valuation. They will conduct a thorough assessment of the property, taking into account factors such as its location, size, condition, and any recent comparable sales in the area. The surveyor's primary goal is to provide an accurate and unbiased valuation of the property.
While local estate agents may have knowledge of property values in the local market, their involvement in the remortgage valuation process is generally limited. Local estate agents are more commonly associated with valuations for buying or selling properties, where they provide market appraisals to guide sellers in setting an asking price or assist buyers in making an informed offer.
In the context of remortgaging, the valuation is primarily for the lender's benefit to ensure the property provides sufficient security for the loan. Therefore, they rely on the expertise of independent surveyors to determine the property's value accurately.
2. What are the implications of a down valuation when remortgaing?
A down valuation during the process of remortgaging can have several implications, including:
Reduced borrowing capacity: If the surveyor determines that the value of your property is lower than expected, it can affect the amount of money you're able to borrow. Lenders typically base their loan offers on a percentage of the property's value. A reduced valuation means your loan-to-value (LTV) ratio will increase, potentially limiting the funds you can access.
Higher loan-to-value ratio (LTV): A lower valuation may result in a higher LTV ratio, which is the ratio of your mortgage loan amount to the value of the property. A higher LTV ratio is generally associated with higher interest rates and less favorable mortgage terms. It may also affect your eligibility for certain mortgage deals with lower rates and more favorable terms.
Increased interest rates: With a higher LTV ratio, lenders may consider your mortgage to be higher risk. To compensate for this increased risk, they may charge you a higher interest rate on the mortgage loan. This can lead to higher monthly repayments and increased costs over the life of the mortgage.
Limited access to equity: If you were planning to remortgage to release equity from your property for home improvements, renovations, or other purposes, a down valuation can significantly impact your plans. The reduced valuation may lower the amount of equity available to you, limiting your ability to access the funds you need.
Reassessment of affordability: Lenders consider the value of the property as part of the affordability assessment for a remortgage. A lower valuation may trigger a reassessment of your affordability, potentially affecting your eligibility for the desired mortgage amount. The lender may require additional documentation or adjust the terms based on the revised valuation.
It's important to carefully evaluate the implications of a down valuation before proceeding with a remortgage. You may want to discuss the situation with your lender or seek advice from a mortgage broker to explore alternative options or negotiate a resolution.
3. Are online valuation tools accurate?
Zoopla and Rightmove are popular websites in the UK that provide estimated property valuations, but it's important to understand that these online tools should be used as a rough guide rather than a definitive source for determining the value of your home when remortgaging.
These valuation tools use algorithms and data analysis to estimate property values based on various factors such as recent sales in the area, property size, and other market trends. While they can give you a general idea of the property's worth, they are not a substitute for a professional valuation conducted by a qualified surveyor.
When remortgaging, lenders typically require a formal valuation of the property to determine its current market value. They may have specific requirements and guidelines regarding the type of valuation they accept. In most cases, lenders prefer valuations carried out by professional surveyors who visit the property in person to assess its condition and comparable market values.
The valuations provided by Zoopla and Rightmove are based on automated algorithms and do not consider the specific features, condition, or unique characteristics of your property. Therefore, they may not accurately reflect its true value.
It's advisable to consult a professional surveyor or rely on the valuation services offered by your lender to obtain a more accurate and reliable valuation when remortgaging. They will consider the property's condition, location, recent sales data, and other relevant factors to provide a comprehensive assessment of its value.