Different Types of Mortgage Valuation

Different Types of Mortgage Valuation When I was at school I remember reading Animal Farm, ‘all animals are equal but some are more equal than others’. As is the case with mortgage valuations. When you’re in the process of securing a mortgage, one crucial step involves a valuation of the property you intend to secure […]

July 30th, 2024

Different Types of Mortgage Valuation

When I was at school I remember reading Animal Farm, ‘all animals are equal but some are more equal than others’. As is the case with mortgage valuations.

When you’re in the process of securing a mortgage, one crucial step involves a valuation of the property you intend to secure the mortgage against. Mortgage valuers play a pivotal role in assessing the market worth of the property, but not all valuation reports are created equal.

Different lenders will lend up to a set loan to value (LTV) percentage but will base that on varying valuation methods, and that can make a huge difference, especially as methods of construction evolve.

Here’s a breakdown of the different types of valuation reports and what each means.

Open Market Vacant Possession (OMV)

This refers to the valuation being based on the conditions of a free and competitive market where:

The property is available to any potential buyers.
The sale is conducted without any undue influence or restrictions.
The property is marketed for a reasonable period to attract the best offer.

This indicates that the property will be sold or transferred without any occupants or leases. Essentially, the buyer will have immediate and unencumbered use of the property after the purchase. In layman terms this is what most borrower consider to be the measure of value of a property.

Open Market Value – Not Vacant Possession

Open market value (OMV) not vacant possession is a property valuation method that estimates the market value of a property assuming it is sold with existing tenants. This differs from the “vacant possession” scenario where the property is assumed to be unoccupied and free of any leases or occupants.

The valuation takes account of the impact of existing tenancies. Valuers will adjust the valuation given the buyer choice is less as properties such as this are aimed at investors. It doesn’t mean the value will be higher or lower, it all comes down to how the existing tenancy is considered by the valuer.

It may well be that this type of valuation takes a more leading role as and when Article 21 (no fault evictions) is abolished.

90 or 180 Day Valuation

A 90 or 180-day forced sale valuation is a type of property appraisal that estimates the value of a property under conditions where it must be sold quickly, notably within 90 or 180 days.

This situation often arises in contexts such as foreclosure, liquidation, or other circumstances where a seller needs to dispose of the property urgently. When it comes to mortgages it tends to be short term lenders, bridging or development lenders who will look at these valuations.

Where a mortgage is short term, say up to 12 months then the lender will be more interested in this figure as it better represents the most suitable valuation for them.

As makes sense, when the sale period is reduced then the valuation follows. It is expected that the 180 day value will be lower than open market value (OMV) with the 90 day value lower still.

The Importance of Understanding Which Valuation is Being Used

When it comes to mortgage lenders agreeing to lend up to a set loan to value (LTV) then understanding which valuation the lender is using is key. Sometimes a lower maximum LTV mortgage based on OMV can release more borrowing than a higher LTV mortgage based on 180 day valuation.

Always read the detail.

For any questions about which valuation a mortgage lender may use, or help with financing your next property project then get in touch.

By Dave Farmer

David Farmer

Over 30 years finance experience. Former credit underwriter, founder of Lime Finance Solutions in 2012. Multi Award winning business, featured in Sunday Telegraph, Parliamentary Review, Sky TV and others. Regular contributor to press and business associations. FCA Authorised, ALIBF Qualified. Specialist in Commercial Mortgages, Business Lending, Property and Development Finance.