Lenders can adopt several different types of valuation usually dependent on the situation and the risk profile of the individual case.
An Automated Valuation (AVM) is usually used in lower loan-to-value scenarios or where a borrower already has an existing mortgage with the chosen lender and is looking for a new product with them. Used for cases 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.
A desktop or drive-by survey is another common method for residential properties that will be carried out by a local surveyor who knows the area. However, rather than inspecting the property internally, they will use Google Street View or will drive past the property to ensure it looks habitable and has good security before looking for comparable evidence of properties sold within the last six months within the local area. This method may fail to consider the internal condition of the property and will likely return a mid-range value for the type of property.
The most common is a physical valuation for mortgage purposes. 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 locally within the last six months and provide comparable evidence to the bank noting the condition of each property. It is worth noting that they will only report what can be seen and won’t investigate the cause of an issue.
Finally, if you are purchasing or remortgaging there is the ability with most lenders to upgrade your valuation to a Level 2 Homebuyer’s Report. This is a more detailed visual inspection containing all the information from a physical valuation for mortgage purposes, plus the surveyor will give advice on defects that are affecting the value of the property. They will also give an estimate for rectifying issues or suggest whether a defect needs specialist investigation.
With the majority of mortgage products, the basic valuation cost is covered by the lender with the exceptions of a Level 2 Homebuyer’s Report which can be booked with your lender at the point of application for a specified fee or a standalone and more in-depth Level 3 Structural Survey which would have to be instructed separately to your lending survey.
Knowing the type of survey carried out will give you an insight into the potential for inaccuracy in a valuation and is particularly helpful to understand if you are close to a loan to value product threshold. Your mortgage consultant will be able to provide further information on the valuation that you and/or your lender has selected and answer any additional questions that you might have.
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