The survey, or mortgage valuation process, is a key part of the mortgage journey. In this article we explore the purpose of valuations, the different types of survey that exist and what the most common issues and solutions are.
Why Is a Survey Needed?
Mortgages are a form of secured loan, meaning that any money lent to a borrower is linked to a property as a form of security. This means that lenders have a fall-back position in the event that mortgage payments are not made (defaulted) and in the worst case scenario, they can take control of the underlying property and sell it to recover their money. This fall-back position reduces lenders overall risk and so they can offer lower interest rates when compared to unsecured loans like personal loans or credit cards.
Assessing the value of the underlying property is, therefore, critical for the lender as this is what they will rely on in the event of a default. Lenders usually have “panels” of surveyors with whom they work and they have pre-agreed terms meaning that they can quickly go out and physically undertake an inspection and look for all the things the lender wants them to look for.
You can appoint your own surveyor for your own purposes, but as the lender will most likely not have agreed terms with that surveyor, those reports are not normally relied upon and therefore they are not deemed to be independent. The lender will usually insist on appointing their own surveyor.
What are the different types of survey?
- Basic Survey: the simplest form of survey where the lender instruction a surveyor purely to evaluate the property’s suitability for mortgage lending purposes. Often these reports are not released to the customer and are reserved purely for the lenders. The output of that survey is a mortgage valuation figure which hopefully matches the figure you had in mind!
- Homebuyer Survey: a more detailed report, looking beyond the basic survey and identifying other property issues and presenting them in a user friendly manner using a colour coding system known as Red, Amber and Green to give more detailed understanding of the condition of the property
- Structural or Building Survey: the most detailed report used to really look at the building in great detail and highlight issues spanning a whole range of areas. Such reports are often commissioned for Grade Listed or unusual properties.
- Home Report (Scotland): In Scotland, properties need a Home Report which is usually produced by the seller. The Home Report includes a section specifically assessing the suitability of the property for mortgage lending.
When does the valuation normally take place?
The normal process is for the lender to firstly undertake the underwriting process on a new mortgage application to satisfy themselves that everything looks fine prior to appointing a valuation. This is to avoid the awkward situation where a customer pays the lender a valuation fee early in the process which is then rejected during underwriting and so is effectively a waste of money.
Some lenders offer a free basic survey (this is very common for remortgages) and commence underwriting and the survey process at the same time. This dramatically speeds up successful applications as the two processes run in parallel.
As a customer, if you are paying the lender for the survey, you can sometimes ask the lender to parallel track both processes to save time, but it will be at your risk and you might end up paying for a survey that is never used!
What are the common issues identified?
Property surveys can identify a number of issues and to date, and it is extremely rare to see a report that has no issues in it! Below is a list of the common issues that can have an impact on the mortgage process:
- Issue: the most common issue raised on a survey. This is where the surveyor disagrees with the valuation proposed for the property and has stated a figure lower than expected. This will have a direct impact on the amount of money a lender can offer.
- Solution: Notoriously difficult to overturn, the only way a surveyor can be challenged on a down valuation is by providing factual comparable data of very similar properties, located nearby that have sold in the last three to six months, thereby proving a higher valuation. Given that this is what surveyors do when the make their own value assessments, the chances of you finding some missing data is rare, but it is always worth a try!
Damp & Timber
- Issue: damp or rot is identified at the property, sometimes on the walls or often in the roof timbers. This is quite common with properties that have sat empty for a while or are old.
- Solution: the surveyor normally requests a further, more details Damp & Timber report from a specialist which will look in more detail at the problem and provide an estimate of the cost of repair.
- Issue: some properties in the South West, often in and around Cornwall, can contain elements of a substance known as Mundic Concrete. If this is found, the property might not be mortgagable as Mundic Concrete can be unstable.
- Solution: the surveyor will most likely request a Mundic test to be carried out at the property to determine if the material is present. This often involves drilling into the suspected site and doing chemical tests.
- Issue: sometimes the surveyor will identify that the property is located in an area known for past mining activity (again, Cornwall’s tin mines are a common example).
- Solution: the surveyor will normally ask for a detailed mining report to be undertaken to assess and confirm if there is any risk from former mining.
- Issue: deep cracks in structural walls, or other such serious matters will be identified and raised by a surveyor as critical risks. This could also include any evidence of heave or subsidence.
- Solution: a detailed Structural Survey will be requested by the surveyor and a specialist will attend the property to evaluate the situation and produce a detailed report for the lender to assess.
Property Resale issues
- Issue: this is a much broader category of concern, but essentially anything that the surveyor has identified that might impact the ability for the lender to re-sell the property in an emergency. Common examples include close proximity to certain commercial operations, like a pub or shop, holiday parks and properties within the grounds of a hotel etc
- Solution: this is where Google Maps and Street View really helps! Having a very close look at the property and confirming what is near or next to it is essential. The aim is to try and prove that the surveyor has mis-understood the location and to demonstrate that there is no real impact on resale.
Suitability for Holiday Letting
- Issue: a surveyor will normally be asked for their option on the suitability of the physical location for holiday letting purposes. Dense residential areas and urban centres can often cause issues here!
- Solution: This issue can be difficult to challenge, but you might be able to provide the surveyor with some physical comparable data of nearby properties that are currently being holiday let.
Holiday Let Mortgage surveys or valuations are a critical part of the mortgage process and are rarely straightforward.
Quickly identifying the issues and knowing what to do to correctly challenge them is very important and that is why working with a focused, specialist holiday let mortgage broker is essential.
With experience and knowledge in these processes, expert brokers such as Holiday Cottage Mortgages can really make a difference when it comes to over-turning issues and getting your mortgage application all the way across the line.
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The information contained in this article is accurate at the time of writing, based on our research. Rules, criteria and regulations change all the time and so please speak to one of our Consultants to confirm the most accurate up to date information. Nothing in this article constitutes financial advice. You understand that by clicking any external links on this page that you will be leaving the website of Holiday Cottage Mortgages and we cannot be held responsible for the content of this external website. Please always consult your accountant or solicitor for all financial, taxation or legal matters.