The idea of receiving a mortgage valuation for your property, mentioning the words "zero" or "nil", must be every homeowner's nightmare. While those terms can be much more dramatic than the reality, they can still create a challenge. What may prompt mortgage companies to issue a zero valuation on a property, and how can you address the issues raised?
What is a nil or zero property valuation?
The first thing to remember is that a mortgage valuation survey does not replace a traditional survey. To give an accurate value, standard surveys look into the nooks and crannies of the property, including:
- Planning permission
- Surrounding area
- Structure of the building
- Planning regulations
- Safety regulations
When it comes to mortgage valuation surveys, these tend to be much less in-depth. This type of survey tends to be undertaken using one of three approaches:
- Simple desktop valuation using the value of similar properties in the area
- A drive-by valuation which would take in a glimpse of the property and neighbourhood
- An appointment to view the property inside and out
The older the property, the more likely a full viewing would be required. This ensures the property abides by all current housing-related regulations and safety standards. It is worth remembering many properties may be over 100 years old, and sometimes they'll be even older. At the time these properties were built, the rules were very different!
Why would my property receive a zero valuation?
We can only imagine the shock of seeing a mortgage survey valuing your property at zero. This does not mean your property is worthless and typically means one of two things:
- There is additional work required to bring the property up to date with regulations
- The property is a type not covered by the mortgage lender
The best way to think of a zero valuation is as a flag. This often means further investigative work is required, which may or may not result in the removal or updating of a zero valuation. Whether you are looking to purchase a property or remortgage an existing property, the solution may be simple: approach a different mortgage lender. The UK mortgage lending market is enormous. Whatever your scenario, there will usually be a specialist mortgage lender in the UK to cover that particular situation. This is where using a mortgage broker can be beneficial.
Can I appeal a zero property valuation?
A property may be recorded as "zero" or "nil" value for various reasons. Appealing such a ruling by your mortgage company is something to consider, but this may not be required. Finance companies often place a zero property valuation on record where additional investigation is needed. It may be that:
- They were unable to gain access to the property
- Elements of the deeds may require further clarification
- An older property may have structural issues
There will be occasions where additional work is required. However, there will also be situations where the valuation is adjusted after further investigation, and the application can proceed. It is important to note that you can request a copy of the mortgage valuation survey, which will make clear any issues that came up.
What are the main reasons a property would be valued at zero?
When producing a mortgage valuation survey, there are numerous reasons for recording a zero rating. These include:
- Close vicinity or connected to a commercial property
- The cost of repairs is more than the resulting market value of the property
- Foundations and brickwork are affected by issues such as Japanese knotweed
- Underground mine shafts may increase the risk of structural damage
- Failure of the developer to abide by regulations such as methane gas shielding
This list is not exhaustive, but it gives you an idea of the potential issues that could result in a zero valuation for your property. The basic premise of a zero valuation is that the mortgage lender believes there is a danger you will not repay them in full. If a mortgage lender believes there is an unacceptably high risk, they are entirely within their rights to refuse mortgage funding.
What are the implications of a zero valuation?
A zero valuation could significantly reduce the pool of potential buyers or your ability to remortgage a property. For example, if there was a severe issue with your property, it is unlikely any buyer would be able to secure a mortgage until you addressed the problem. Consequently, this would reduce the potential pool of buyers to cash-only investors. They would likely look to negotiate a lower sale price because of the zero valuation issues and the fact they were cash buyers. Occasionally, this could lead to you receiving significantly less than the "real market value" of your property.
Would a zero value impact lifetime mortgages and home reversion schemes?
For homeowners over 55, there are two specific options for raising funds using your home as collateral.
A lifetime mortgage is similar to a traditional mortgage, except interest payments are rolled up and paid off together with the original mortgage capital. Therefore, there are no monthly payments to make. Be aware that when arranging a lifetime mortgage, some applicants may face the prospect of a zero valuation. If there are issues that threaten the repayment of a lifetime mortgage, the lender may reject an application.
Home reversion scheme
While a home reversion scheme does not involve any loans or mortgage payments, again, it is based upon the property's marketable value. Therefore, the home reversion company would conduct an in-depth survey of the property. Traditionally, they would offer between 20% and 50% of the market value for any investment in your property. While unlikely, there may be scenarios where a survey leads to a zero valuation, which leads to a lender rejecting the application. Therefore, it is vital to take advice on home reversion schemes. Some parties may use temporary or repairable issues relating to zero valuations to force down the cost of acquiring a share in your home. Be careful!
Are there alternative mortgage lenders I can approach?
The UK mortgage market is highly competitive, and you will likely find a mortgage provider for any occasion or scenario. For example, some mortgage providers may choose not to become involved in homes located above commercial premises. On the flip side, many specialists in this area can assist in raising finance. This is one of the scenarios where mortgage brokers can prove extremely useful. They will be aware of specialists in the traditional mortgage market and be able to help you navigate lifetime mortgages and home reversion schemes. Even though interest rates and charges may not be as competitive in these more specialist areas, there is still the potential to release equity from your property.
What are zero value properties?
The receipt of a zero or nil valuation mortgage property survey would be a shock for anybody. However, this label is often added to mortgage property surveys to indicate the need for additional investigative work. There are scenarios where repair or construction work will be required by the homeowner and rare occasions when mortgage finance is not available. The first thing to do is request a copy of the mortgage property survey and then take advice regarding issues raised. The use of mortgage brokers can prove extremely useful in this scenario, offering access to specialist mortgage providers for non-traditional scenarios.