"Given the increase in mortgage rates over the last few years, it’s understandable that borrowers are looking to cut costs wherever they can but skipping a home survey shouldn’t be one of them."
As activity in the housing market starts to show signs of picking up again, it’s important advisers don’t miss the opportunity to explain to borrowers the benefits of having a home survey carried out.
A lot of borrowers still don’t fully understand the difference between a mortgage valuation and a home survey. Some even assume that if a lender has done a valuation, then everything must be structurally sound.
A lender’s valuation, however, is not meant to protect the borrower - it simply checks if the property’s value covers the loan amount. In contrast, a survey can reveal a range of issues, from relatively minor concerns to more serious structural defects.
Despite the importance of a survey in identifying potential problems, only about 12% of borrowers actually get one before buying. Unfortunately, home surveys often don’t receive the same level of attention from advisers as other areas of the mortgage advice process, such as protection.
While it may not directly fall under Consumer Duty, explaining the benefits of a survey to borrowers still aligns with the Duty’s principles and helps ensure the best outcome for clients.
Given the increase in mortgage rates over the last few years, it’s understandable that borrowers are looking to cut costs wherever they can but skipping a home survey shouldn’t be one of them. Spending a few hundred pounds on a survey might seem like a lot, but it’s usually money well spent.
Recent research from the HomeOwners’ Alliance shows that one in three homebuyers who opted for a survey actually ended up saving money. For 30% of those buyers, the survey gave them a chance to act before buying. For example, 10% managed to renegotiate the purchase price, and 9% got the vendors to fix issues.
Since fixing problems can run into thousands of pounds, it can be helpful for buyers to know beforehand any additional costs they might face once they have moved in.
Lack of awareness
A gap in understanding around the role a home survey can play is nothing new. Just over ten years ago, the Royal Institution of Chartered Surveyors (RICS) asked former MP and Financial Services Authority (FSA) board member, Dr Oonagh McDonald, to investigate some of the issues surrounding valuations at the time. Amongst other things, her findings revealed a lack of understanding about the difference between a valuation and a survey even within the mortgage industry.
Unfortunately, following the report, many lenders pulled back from offering surveys. That’s why we now only have a few lenders offering a combined survey and valuation. There was an assumption that following the findings, borrowers would source their own surveys from RICS-accredited professionals. However, the industry hasn’t really picked up the mantle.
Advisers don’t however need to be experts on this. All they need to do is signpost clients to those who can explain what a survey involves and the benefits it provides.
To give a brief overview, there are three main types of surveys- Level 1, Level 2, and Level 3. Level 1 - the Condition Report, is the most basic. While the Level 2 Home Survey, also known as a HomeBuyer Report, is the most popular and a good choice for properties in decent condition. The surveyor will carry out a detailed visual inspection and highlight any issues, like damp or asbestos, that might not be obvious during a brief viewing.
For older properties, unusual builds, or those in poor condition, a Level 3 Home Survey - the Building Report - is recommended. This type of survey not only points out obvious defects but also discusses future maintenance and highlights areas that might need more frequent repairs.
Work behind the scenes
You might worry that suggesting a home survey could scare off a buyer, but that’s not necessarily the case. Even if defects are found, it doesn’t mean the buyer will back out.
There’s currently a strong case for making home surveys mandatory in England. Several organisations are lobbying for a system akin to Scotland’s Home Report, where a professional survey is conducted before a property goes to market. Evidence shows that Scotland’s approach has stabilised their market and also reduced the number of buyer dropouts. Good progress was made under the previous Government, and it is hoped this will continue under the new administration.
In the meantime, by having a simple conversation with borrowers about home surveys, advisers can help protect their clients’ interests and ensure the best outcomes in the home-buying process.
