Why do banks request structural reports when lending money?

When you purchase a property, you will want to ensure that you are not paying more than it is worth. The banks are no different, so if you are taking out a mortgage to pay for your new home, the lender will need to ensure that the amount they are lending is in line with its value. This is why structural reports and valuations are so important, as we explain in more detail within this article.

What is the difference between a structural report and a valuation?

The valuation report is very basic and will provide an overview about the property and its current market value. As a minimum, all lenders will require a basic valuation report, which will usually be arranged shortly after you are officially ‘Sale Agreed’. In most cases the bank will arrange this themselves via their approved register of qualified surveyors, however you may need to arrange this yourself. The valuation is often referred to as a condition report, which is the most basic form of survey available.

In comparison, a structural inspection and report is designed to inspect the actual condition of the property rather than its value. The inspection and report can be completed by a chartered surveyor or engineer, and will detail structural defects such as cracks, roof structure defects, and issues with foundations. These structural reports are organised by the purchaser, and whilst they are not requested by the bank or legally required, they are always advised.

Is a valuation essential when purchasing a house?

Yes, if you are borrowing from a bank or mortgage provider, you will need a valuation. The lender will only provide funds if the price you are paying is considered to be a reasonable market price for the property, and if the property is suitable for securing finance. The bank will not issue a loan offer until they have this information, and in most situations, the valuation should align with the purchase price.

In some situations, the mortgage provider may request a Level 2 survey, which will go into a bit more detail than the basic valuation condition report. This will not involve moving any furniture, carpets, or detailed inspections, but it will highlight major potential issues such as damp or subsidence.

Ultimately, every mortgage provider and bank will have their own specific survey requirements, but they will all require at least a basic valuation. For example, if the property is of a non-standard construction or more than 100 years old, the lender may specify that a more detailed survey is completed. If the valuation is lower than the purchase price, it will be difficult to obtain a mortgage, as the lender will not have the security needed within the home should you default on your mortgage repayments.

For example, if you are purchasing a property for £300,000 and you have a £30,000 deposit, the bank will need to provide a mortgage of 90% which would be £270,000. If the property is then valued at £250,000, the lender is likely to only offer a mortgage of 90% of the £250,000 valuation. This would mean a mortgage of £225,000 alongside your £30,000 deposit would leave a shortfall of £45,000, which could force you out of the sale.

Should I pay for a structural survey if I have a valuation?

Yes, although the bank will have a valuation figure and a very basic overview of the condition of the property, you may not be aware of structural issues or hidden defects. A  structural inspection and report will examine every area both inside and outside the home, so that you are fully aware of potential issues. The structural engineer may also indicate the likely cost of repairs, so that you can either pull out of the sale or negotiate a lower purchase price.

Within a basic valuation the surveyor may not even step foot inside the property, so you could be paying a significant sum of money without knowing what problems may exist.

Simplify – Professional structural surveys

As a team of professional engineers, we are supervised by a Chartered engineer under the Institution of Civil Engineers (ICE), and we are able to provide the detailed structural inspection you need to make an informed decision on the purchase of a property. If you would like to find out more about our team of engineers which complete thorough structural surveys across the UK, contact us today for a competitive quote.