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Do I need a homebuyer survey to get approved for a mortgage?
Updated: Tuesday 6 March, 2012
By Martin Fagan
If you’re thinking of buying a house, you should find out if it’s in good condition and whether it requires work to rectify any issues - such as a leaky roof or damp problems. But is having a survey a binding condition of your mortgage offer?
The house-buying process in the UK is a daunting set of interlocking procedures where disaster can strike at any point. For the first-time buyer facing the journey with only the faintest idea of what’s ahead, the prospect is a daunting one.
But house buying is a “process”, in that the procedure that leads you from applying for a mortgage to picking up the keys is a linear one - you start at the beginning and finish at the end - with each step taking you closer to your dream of home ownership.
- Is a homebuyer’s survey the same as a valuation survey?
- The homebuyer’s report
- Don’t skimp on your survey
- Retaining and withholding
- And finally...
Is a homebuyer’s survey the same as a valuation survey?
Before they advance the money, a lender will want to see that the bricks ‘n’ mortar on which the mortgage is secured is a sound investment.
The vast majority of mortgages agreed in the UK are to buy property that is structurally sound, habitable and, should you default on the mortgage and the lender have to repossess - an alarming prospect, but it does happen - a viable prospect to sell on so the lender can recoup its investment.
Mortgage products which enable the adventurous to buy wrecks for renovation or even finance a self-build property are also available, but they tend to be niche products from specialist lenders funding unconventional projects.
So you’ll be getting a “conventional” mortgage. But do you need a survey done on the property you’ve set your heart on before the lender will agree to advance you the money?
This is a bit of a grey area, as although it’s essential to carry out a survey to establish the property’s condition before you actually buy it, many lenders look to carry out something called a “mortgage valuation survey” and this is what they base their decision on.
Because it includes the word “survey”, many buyers assume the valuation survey is the same as a structural survey, often called the “homebuyer survey”. But it isn’t.
Although you’ll have to pay for it, the mortgage valuation merely survey merely confirms to the lender that the property is worth at least what it is lending you. It’s not its responsibility to point out any repairs that need doing or whether the ominous cracks around the windows are symptomatic of some deeper malaise, such as subsidence. This is where the homebuyer’s report comes in.
The homebuyer’s report
The homebuyer’s report covers structural safety and highlights any potential problems with the fabric of the building, including damp, as well as anything that doesn’t meet current building regulations. It takes two to four hours to complete, giving an independent and expert view on the property’s market value.
If you need a more thorough survey undertaking, this is a building survey (formally called a “structural survey”). If you’re dealing with a large, older or run-down property, a building that is unusual or altered, or if you’re planning major works, then you need a building survey. But note this type of survey doesn’t include a valuation unless you request one and pay extra.
A cheapest version of a survey is the “condition report” and this is the most basic, least expensive survey available. It’s best suited to conventional properties and newer homes that seem to be in reasonable condition and are built from common building materials. It reports on the condition of the property only - it doesn’t include advice or a valuation.
Don’t skimp on your survey
All mainstream lenders will take differing approaches to surveys. Some lenders may take the view that as long as the property is worth what they’re advancing; they’re not fussed about the statistical likelihood of the property collapsing into the disused mineshaft it was built over, as the buildings insurance should cover it and the lender will get its money back that way.
However, this is where insurers get very picky and start looking at the fine print. If you didn’t have the full structural homebuyer’s survey carried out before buying, they could cry negligence on your part, as any structural problems would’ve been flagged up making the property a bigger risk and the insurer charging you a higher premium. At this point, the insurer could refuse to pay up, leaving you in the financial lurch.
Retaining and withholding
Some lenders may insist on looking at independent surveys you have done, even though they’ve conducted - and you’ve paid for - their own valuation survey. This usually happens in times of uncertainty in the housing market, or when property prices are flatlining and there’s no guarantee the value of the property will rise higher than the money the lender’s advanced to you.
If the building needs work before being habitable - anything from a new damp course to hacking out blown plaster and re-rendering and re-plastering to underpinning – the lender may retain part of the mortgage until this work is done.
This puts you in a very painful financial bind. Not only do you have to scrape together the amount the lender is withholding to fully complete the purchase of the property, but also scrape even more money together to fix whatever’s wrong with the property. Only then, after either submitting guarantee certificates to confirm the work has been done to a satisfactory standard or else paying another surveyor to validate the work, does the lender release the withheld funds and your battered finances breathe a sigh of relief. But this is unusual.
Having said that, it happened to me in July 1996, when I moved house right at the bottom of the market to an Edwardian property with a few structural problems. So if the property you’re buying is an older one and the homebuyer’s survey brings to light something that might cause the lender to withhold funds, it’s a good idea to have a source of short-term finance you can tap, preferably family.
And finally...
While a homebuyer’s report isn’t strictly necessary to get a mortgage, for the sheer peace of mind of knowing that your dream home won’t turn into a nightmare building, it’s often worth paying out for.
When appointing a surveyor, make sure they’re a member of an accredited body such as the Royal Institute of Chartered Surveyors (RICS). RICS has a detailed information sheet, explaining the different types of survey on offer, which you can download from its website.
For a complete guide to the mortgage application process from beginning to end, read our guide.
THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP
REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.