If you’re looking at buying a property through a bank in Australia, you'll need a bank valuation as part of the home loan process. Here, we’ll look at the factors that make up a bank valuation, as well as the impact it can have on your borrowing power.
When it comes to buying property, there are a few moving parts to consider – and one important piece of the puzzle is getting a bank valuation. A bank valuation is (as the name implies) the value of the property as decided by a lender, often using an independent valuer.
A bank valuation can have an impact on your borrowing power. After the valuation, the bank will use this number to work out the loan-to-value ratio (LVR). Essentially, your LVR percentage is your loan amount divided by the bank’s valuation of your property – and it helps the lender weigh up the risk of approving a home loan. Lenders generally ask for a 20% deposit (that is, 20% of the value of the property), which equates to an 80% LVR. An LVR higher than 80% will generally incur lenders mortgage insurance, which can be an important cost to factor in.
Higher LVR’s are considered riskier for both the lender and borrower and will impact the amount you can borrow. It’s in everyone’s interest to ensure you can repay your loan – and bank valuations help us do that.
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Bank valuations (also known as property valuations) are usually performed by an independent valuer on behalf of the bank. The valuation will provide the estimated amount for which the property would be expected to exchange between a buyer and a seller.
When calculating the value of a property, there are a few things banks take into consideration, including:
Sometimes the valuation can be carried out from the street and then compared to recent sales data for similar properties in the area. Other times access inside the property might be needed for a more thorough inspection. Your local Home Finance Manager will let you know if this is the case.
What happens when you’d like to purchase a property and the bank valuation comes in lower than expected?
You may have trouble borrowing the amount you've applied for. This doesn’t mean the property is out of reach. The key thing to remember here is LVR. A lot of banks won’t lend if the LVR is more than 95% - it’s too risky. If the LVR is above 80%, you may need to pay Lenders Mortgage Insurance (LMI) to help manage the level of risk the bank is taking on.
Bank valuations happen as part of the home loan application process. So if the bank valuation is lower than the amount you’ve agreed to pay for your new home, you may need to do a bit more work to get the loan application over the line. To make up the shortfall, you could leverage existing equity you might have, find more money to top up your deposit or look at having someone act as guarantor.
When it comes to selling your property, you won’t need a bank valuation – but you might consider getting a market estimate from your real estate agent. A market estimate is an estimate of how much the property may sell for on the real estate market. Real estate agents may base this number on their experience, as well as the market value and recent sales data of similar properties. You’ll want to get the best price possible - and a higher market estimate might help push the purchase price up a couple of notches. Here are a few tips and tricks to help increase your chances of nabbing a higher estimate.
A tidy, well-maintained property can have a big impact on its estimated value. As the saying goes: first impressions are everything. Think of your market estimate as you would an open home. Do a proper deep clean, tidy away any clutter and make sure your lawns and gardens are in top shape. A little effort goes a long way and could make a real difference to your property price.
Although you’re not selling your home to the agent, it doesn’t hurt to highlight some of its key features (especially if they’re not immediately obvious). Pull together a list of everything your home has to offer and make it available to the agent. This could be things like a newly-installed reverse-cycle air conditioner, solar panels, fresh carpet or top-of-the-range appliances. These small things could help increase your property price.
Your home’s features aren’t the only factors that can affect its value. If there are any community plans in the pipeline for your neighbourhood, it could be a good idea to give the agent a heads up. Things like a new playground or bike path could be seen as adding value to the area – and could potentially increase the property price for the estimate.
Whether you’re interested in buying or selling, we’re here to help – every step of the way. For more information about bank valuations, you can call us on 132 558, or visit a branch to chat to your local Home Finance Manager.
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This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice. Credit provided by Westpac Banking Corporation ABN 33 007 457 141 AFSL and Australian credit licence 233714.
