Underwriting concepts
Valuation
Lender-instructed survey of the property by a RICS-qualified surveyor, producing the figure used to size the loan.
Valuation is the lender-instructed RICS Red Book survey of the property securing a UK commercial mortgage. The valuer’s figure (not the purchase price, not the borrower’s expectation) is the binding number used to size the loan against the LTV ceiling.
The two figures a UK commercial valuation produces
A standard UK commercial mortgage Red Book valuation reports both:
- Market value (MV): what a willing buyer would pay a willing seller in an arms-length transaction, with reasonable marketing time.
- Market value subject to special assumptions: typically vacant possession value or value with restricted marketing time. Lenders sometimes underwrite against this lower figure for higher-risk cases.
On investment property the valuation also covers:
- Investment value: yield-based capitalisation of net rent. The valuer’s view of the yield is often the most contested figure in the report.
- Vacant possession value: what the property is worth without the in-place lease.
How surveyors arrive at the figure
Three methodologies, often used in combination:
- Comparable transactions: recent arms-length sales of similar properties in the same area. The most-used method on owner-occupier deals.
- Investment method: net rent capitalised at a yield derived from comparable investment transactions. Standard on let investment property.
- Residual valuation: GDV less costs less profit. Used on development and refurbishment cases, where the property does not yet exist in completed form.
When borrowers should expect a downvaluation
Common triggers. Vendor’s asking price ahead of recent comparable sales. Lease just renewed at headline rent rather than a market-tested rent. Specialist asset class with thin comparable evidence (HMO blocks, religious buildings, kennels, marinas). Property with title issues, restrictive covenants or partial leasehold tenure.
Costs and timelines
A standard UK commercial mortgage valuation costs 800 to 3,500 for tickets under 2 million, scaling roughly with property value and complexity. Specialist asset classes attract higher fees. Turnaround is typically two to three weeks from instruction to report, longer on regional or specialist work.