What should you do if your mortgage is declined after valuation?

A mortgage property valuation is a survey of a property’s value and condition carried out on behalf of the lender, but often paid for by the prospective buyer (AKA you). It is used to confirm whether or not the property will provide suitable security for the loan in question and ensure the offer fulfils the lender’s Loan-to-Value (LTV) criteria. A down valuation, for example, will mean a higher LTV ratio, which may make your application no longer acceptable. The property valuation is a critical step in a lender’s decision-making process and can lead to mortgage refusal for a variety of reasons.

See more: Understanding Loan-to-Value & How it Works

A mortgage valuation survey is either carried out by a qualified RICS surveyor or calculated using an Automated Valuation Model. It will be arranged by the lender but may incur costs for you. The survey can be desk-based, drive-by, in-person, or use a combination of different approaches. This will vary depending on what the lender wants to know, and the processes used by the surveyor in question.

During the survey, the surveyor will look at any major structural issues or defects that might have an impact on the property’s value, and investigate what similar houses in the area have sold for. If the mortgage is a buy-to-let mortgage, they will also look at typical rental incomes achieved in the area and estimate the Minimum Reinstatement Value; that is, how much it would cost to rebuild the property from the ground up. The surveyor will then summarise their findings for the lender in a report known as the Standard Valuation.

Down Valuation

When the surveyor’s assessment demonstrates that the price agreed by the buyer and the seller is inflated, it is known as a down valuation. This can significantly impact the amount of money you can borrow or the interest rates available to you, and can be a massive hinderance in the house buying process. For example, if you are applying for a 90% loan and the estimated value of the property falls, the lender is likely to only offer you 90% of the new value. As a result, you may no longer be able to afford it. More than that, if the difference in value is considerable, you may no longer fulfil the LTV lending criteria, resulting in the lender pulling the plug entirely.

Read next: An Overview of Mortgage Interest Rates

Issues With Property

Some issues to do with the property’s condition or structural integrity can trigger immediate rejections from mortgage lenders, including:

• Certain cladding.
• Damp.
• Asbestos.
• Japanese Knotweed.
• Structural or roof problems.
• Subsidence.
• Uninhability.

Not only is this due to the fact that these issues can impact the property’s value, but the lender will also be aware that significant renovation and repair work can put an additional toll on your monthly finances. This puts your affordability under scrutiny once more, and may lead a lender to view the situation as high risk.

Mortgage Declined on Affordability? Here’s What to Do.

Non-Standard Construction

Some mortgage lenders are wary of providing loans on properties that have unusual features or are built using atypical construction methods. Your prospective property may be deemed ‘non-standard’ if it is:

• Thatched.
• Steel or timber frame.
• Single brick.
• Prefabricated.
• A high-rise flat.

If the property in question is found to fall into one of these categories, many lenders are likely to immediately reject your application. That’s why it’s important to work with an expert mortgage broker who can direct you to someone who specialises in loans for non-standard properties.

Short Lease

If you are buying a leasehold property, lenders will want to make sure there is a long enough term left. This is because the length of a lease will significantly impact its value. As a general rule, mortgage lenders are unlikely to approve mortgage applications for properties with fewer than 80 years remaining.

Increase Deposit

In cases where the lender is still prepared to provide a mortgage, but not at the amount you originally requested, consider whether you could increase the size of your deposit. Gifts from family members and careful budgeting may help you drum up enough cash to make this happen, so you don’t have to say goodbye to your home-owning dreams after all.

Renegotiate with Seller

The mortgage property valuation may reveal no structural defects but a substantial issue with the property’s current price on the market. If this is the case, it may be worth renegotiating with the seller to reduce the amount you are paying for it.

Find New Lender

Sometimes, a lender just isn’t right for you. If you now no-longer qualify for a loan with your lender, or your desired property is non-standard, you may need to seek out someone who specialises in your type of mortgage. At The Mortgage Heroes, we believe there’s a mortgage for everyone, so don’t despair is one lender rejects you; we can find your perfect match.

Contact an Expert

An expert mortgage broker will be able to help you ascertain why you were rejected and liaise with the lender. If the issue was a down valuation, they can explore whether you have grounds for an appeal or whether it might be worth getting a second opinion. If the issue was with the construction or condition, they can point you in the direction of a lender who is happy to offer mortgages on properties of this type. With a specialist on your side, you can rest assured that the right mortgage for you is within reach. It will be move-in day in no time at all!