Buy to let property valuations – what are the differences?

Earlier this year we looked at the different types of valuations adopted by lenders for residential mortgage applications. This month we turn our attention to buy to let property valuations and outline what landlords can expect from each one.

An Automated Valuation (AVM) can be used by some lenders for remortgage cases or where a borrower already has an existing mortgage with the chosen lender and is looking for a new product with them. Used for applications with a low-risk profile to the lender, the lender will take the price you paid for the property and estimate the value based on the percentage increase in the value of other properties in the area over the same period. It is worth noting that this will fail to consider any renovation or extensions done to the property but is a very quick and non-intrusive solution. The lender will also assess the rental of other similar properties to determine the market rental for your property and in most cases will use the lower of their valuation or the actual being achieved.

The most common is a physical valuation for mortgage purposes, sometimes described as a bricks and mortar valuation. This is where a surveyor visits the property to walk around and visually inspect the property to assess size and condition. To arrive at a value, they will then look at similar properties sold and rented locally within the last six months and provide comparable evidence of both property market values and rental values to the bank noting the condition of each property. They will only report any issues that can be seen and won’t investigate the cause of an issue.

An investment valuation, sometimes called a commercial, long form or red book valuation, is most commonly used for larger Houses in Multiple Occupation (HMO) or Multi Unit Freehold Blocks (MUFB). Sales of this type of property can be rarer and as such comparable evidence can be difficult for a surveyor to obtain. In order to value the property, the surveyor instead assesses the rental potential of the property and assigns a gross percentage yield that he believes a property of that type should be achieving. Generally, this will range between 6% and 12% dependent on the area and type of property and can result in vastly different results to the bricks and mortar methodology above.

With all of these valuations further specialist reports such as a structural or damp and timber survey could be requested where there is evidence of a potential defect with the property.

As a landlord, knowing the type of valuation a lender is going to use could hold the key to maximising your borrowing or reducing your costs.