Topic 14 Flashcards
Valuations and surveys (55 cards)
What is the purpose of a basic valuation in mortgage lending?
It is to assess the security offered for a mortgage, especially for building societies as required under the Building Societies Acts 1986 and 1997.
Who usually carries out a basic valuation?
A professional valuer who may be independent or an employee of the lender.
How detailed is a basic valuation?
It is superficial, usually taking around 30 minutes and involving no movement of furniture, lifting of carpets, or inspection of the loft.
What rights does the mortgage applicant have regarding the valuation?
Very limited rights, as the contract is between the lender and the valuer; the applicant only pays the fee.
What does the valuer inspect during a basic valuation?
The interior (room sizes and appearance), exterior (obvious defects), and compares it with similar properties to calculate value and reinstatement cost.
What is a desktop valuation?
A valuation done entirely in the office using software and data on comparable properties, with no physical inspection.
What are the limitations of a desktop valuation?
It may be inaccurate in changing markets and cannot account for physical property issues.
When is a desktop valuation most suitable?
For remortgages or when the property was recently inspected.
What is a retention in mortgage lending?
A portion of the loan held back by the lender until specified repairs are completed.
What does the valuer’s report typically include?
Lending value, reinstatement cost, essential repairs, and recommendation on security suitability.
Why might the valuation for lending purposes differ from market value?
Because it reflects what the lender could recover if forced to sell, often via lower-priced auctions.
Can a valuer be held liable for a negligent valuation?
Yes, if negligence causes financial loss and disclaimers were insufficient or the borrower was inexperienced.
What does the case Smith v Bush (1990) establish?
Disclaimers may not protect valuers from liability if the borrower is inexperienced, e.g. first-time buyers.
What did Stevenson v Nationwide (1984) decide?
A knowledgeable borrower (e.g. estate agent) with a prominent disclaimer cannot claim for negligent valuation.
What are the typical contents of a valuation report?
Property details, dimensions, tenure, essential/minor repairs, defects, insurance/rebuild value, disclaimer, comparable valuations.
What are the four possible recommendations a valuer can make?
Acceptance, rejection, conditional acceptance (undertaking or retention), or lower valuation.
What is reinstatement value?
The estimated cost of rebuilding the property from scratch, used for insurance purposes.
Why might reinstatement value be lower than market value?
Because it excludes the land cost, which market value includes.
What happens if a property’s value is lower than the purchase price?
The buyer may renegotiate, pay the shortfall personally, or cancel the transaction.
Why might a valuer recommend a specialist report?
If issues like subsidence or non-standard features are suspected but can’t be fully assessed from a superficial inspection.
What does the lender consider when making a lending decision?
The lender considers the valuer’s report, its own experience with similar properties, the borrower’s status, and affordability.
What is the maximum LTV based on?
It is based on the lower of the purchase price and the valuer’s assessment of value.
If a property is priced at £200,000 but valued at £190,000, what figure will the lender base the loan offer on?
£190,000.
Why should buyers consider commissioning their own report?
Because the lender’s valuation is limited and for their own benefit, not the buyer’s.
