Usually you can, but the lower figure caps how much you can borrow against the property, so the job becomes getting the best valuation you can and then borrowing within it. A disappointing number on a valuation report stings, but a fall in value isn’t a default. While you keep up the repayments and the other terms of the loan, your bank generally can’t demand money back just because the property is worth less. The low figure matters when you ask for something new, like a refinance or a top-up.
This page is part of our guide for investors holding on through higher rates and falling values.
Why the valuation matters so much
A lender works from its own valuer’s figure. The price you paid and the agent’s appraisal don’t come into it. Your loan divided by that figure is your loan-to-value ratio, and it decides how much you can release and whether you’ll pay lenders mortgage insurance, which usually applies above 80%.
Settled: mortgage insurance you paid on the original loan doesn’t move with you. Refinance above 80% and you’d generally pay it again.
Three things you can do
The first is to check the valuation itself. Ask what kind it was. A desktop valuation is done without anyone visiting, and lenders often use them on lower-risk loans. If it missed something, like a new kitchen, ask for a full valuation with an inspection. Formal challenges rarely succeed, so if you do push back, bring recent sales of similar properties nearby.
The second is to get valuations from other lenders before you apply. A broker can order these upfront. It isn’t a credit application, so nothing goes on your credit file. Valuers working for different lenders can come back tens of thousands of dollars apart on the same property.
Varies: not every lender will order a valuation upfront, and some only do it case by case.
The third is to borrow within the number. That might mean releasing less, or refinancing only what you owe now. If the equity is for another purchase you haven’t found yet, in a falling market I’d rather you wait than stretch.
What a second valuation can be worth
Illustration only, with invented figures. Say your investment property is worth about $1,050,000 by your estimate, and you owe $720,000. Lending up to 80% of that value would be $840,000, so you’d hope to release $120,000.
The first lender values it at $980,000. 80% of that is $784,000, so you can release $64,000. A second lender values it at $1,020,000, which allows $816,000 and a release of $96,000. That’s $32,000 more from a second valuation on the same property. At 80%, every $10,000 of value is worth $8,000 of borrowing.
If that extra $32,000 went towards a deposit, it would cost about $192 a month at 7.2% on interest only, the rate we’ve assumed for a typical investment loan since the November rise.
What we’d do
- Read the valuation report for errors and check what kind of valuation it was.
- Order upfront valuations through two or three lenders that suit the rest of your loan.
- Work out each property’s loan-to-value ratio at the lower figures before deciding how much to release.
- Keep any new borrowing in its own split, separate from your other properties, so one valuation can’t hold up the rest. Our loan structuring page shows how we do it.
- If the valuation is fine but you fail the lender’s affordability test, see what to do when you can’t refinance.
If you’d like us to get the numbers in front of a few lenders for you, book a free portfolio review.