Everything you need to know about Property Valuations

When applying for a home loan, property valuation plays a crucial role in determining your loan amount, interest rate, and overall borrowing capacity. Understanding this process can help Melbourne property buyers make informed decisions about their home loan application.

What is a Property Valuation?

A property valuation is an independent assessment of a property's market value conducted by a qualified valuer. Lenders require this evaluation to determine how much they're willing to lend against the property as security. The valuation directly impacts your loan to value ratio (LVR), which influences your home loan interest rate and whether you'll need Lenders Mortgage Insurance (LMI).

The valuation process involves:

• Analysis of recent comparable sales in the area
• Assessment of the property's condition and features
• Consideration of local market conditions
• Review of any unique property characteristics

How Property Valuations Affect Your Home Loan

The valuation outcome significantly impacts several aspects of your home loan application. If the property values lower than expected, you may need to:

• Increase your deposit to maintain the same LVR
• Accept a higher interest rate due to increased LVR
• Pay LMI if your LVR exceeds 80%
• Reconsider your loan amount or property choice

Conversely, a higher-than-expected valuation can improve your borrowing capacity and potentially secure more favourable home loan rates.

Types of Valuations Used by Lenders

Lenders use different valuation methods depending on the loan amount and property type:

Desktop Valuations
These use automated systems and recent sales data without physical inspection. They're typically used for lower-risk applications with strong LVR positions.

CMA (Comparative Market Analysis)
A middle-ground approach that may include some physical verification alongside data analysis.

Full Valuations
Comprehensive assessments involving physical property inspections by qualified valuers. These are required for higher loan amounts or unique properties.

Factors That Influence Property Valuations

Several factors affect how valuers assess Melbourne properties:

• Location and proximity to amenities
• Property size, condition, and features
• Recent comparable sales in the neighbourhood
• Local market trends and demand
• Any structural issues or necessary repairs
• Unique characteristics that add or detract value

Maximising Your Property's Valuation

While you can't control market conditions, you can influence your property's perceived value:

• Ensure the property is clean and well-presented
• Complete any obvious maintenance or repairs
• Provide information about recent improvements
• Highlight unique features or recent upgrades
• Research recent comparable sales to understand market context

What Happens if the Valuation Falls Short?

If your property valuation comes in lower than the purchase price, you have several options:

1. Negotiate with the seller to reduce the purchase price
2. Increase your deposit to maintain your desired LVR
3. Accept a higher LVR and potentially pay LMI
4. Seek a second opinion through another lender's valuation process
5. Consider refinancing options if you're an existing homeowner

Understanding LVR and Its Impact

Your loan to value ratio is calculated by dividing your loan amount by the property's valuation. For example, if you're borrowing $400,000 against a property valued at $500,000, your LVR is 80%. This ratio affects:

• Your home loan interest rate and available rate discounts
• Whether you need LMI
• Access to certain home loan products and features
• Your borrowing capacity for future loans

Home Loan Options Based on Valuation Outcomes

Depending on your valuation and LVR, different home loan packages may be available:

Low LVR (under 80%)
• Access to lowest rates and premium home loan products
• No LMI required
• More home loan features like offset accounts and portable loans
• Better interest rate discounts and home loan benefits

Higher LVR (80-95%)
• LMI typically required
• Still access to variable rate, fixed rate, and split rate options
• May have fewer home loan features available
• Interest rates may be slightly higher

Working with Melbourne Property Markets

Melbourne's diverse property market means valuations can vary significantly between suburbs and property types. Whether you're looking at your first home loan or considering investment properties, understanding local market dynamics is crucial for setting realistic expectations about valuations and loan outcomes.

Factors unique to Melbourne include:
• Proximity to CBD and transport links
• School zones and local amenities
• Heritage overlays and development restrictions
• Suburb gentrification trends

Property valuations are a fundamental part of the home loan process that directly impact your borrowing capacity, interest rates, and loan terms. By understanding how valuations work and what factors influence them, Melbourne property buyers can make more informed decisions about their home loan application and property choices. Whether you're seeking an owner occupied home loan with variable or fixed interest rates, or exploring split loan options with offset account features, the property valuation will play a crucial role in determining your available home loan options from banks and lenders across Australia.

Call one of our team or book an appointment at a time that works for you to discuss how property valuations might affect your home loan application and explore the most suitable home loan rates and products for your situation.