Why your property valuation matters as much as your home loan interest rate

Fact Checked
Updated 28/04/2024
Why your property valuation matters as much as your home loan interest rate

Time to read : 4 Minutes

Property valuations are a part of the loan approval process that’s always been a bit murky, but it’s a fact no home loan gets unconditionally approved without one. 

When you’re looking to take out a new home loan – whether for a new purchase or a refinance – your property valuation holds as much significance as your interest rate.

Property valuation used to be one of the easiest parts of your home loan application process, because the sale price was considered ‘proof’ of your property’s value. 

But in 2024 it’s not as simple as assuming your lender will value your property in the same way as a real estate agent. 

Let’s take a closer look…

Wide variations in property valuations

Compare Club’s research shows a massive difference in how banks and other lenders are valuing property – and the impact this can have on a home owner who’s looking to refinance. 

  • One example we found was Mark Davis from Newcastle. He had a $74,000 difference in property valuation from lenders when seeking to refinance his mortgage. 

  • The first two lenders valued his property at $450,000 and $470,000 respectively. This meant he’d need to take out Lender's Mortgage Insurance (LMI), as well as facing significantly higher repayments.. 

  • Mark’s broker found him a third option: a lender valuing his home at $524,000. 

  • This allowed him to secure his new loan at a much lower interest rate, reducing his monthly repayments by $1,280. 

In another example, we spoke to WA-based teacher Marina, who’d approached numerous banks about refinancing her mortgage for home improvements. She was shocked by the variation in her home valuations, some so low that it meant she wasn’t eligible for refinancing. 

ANZ and Commonwealth Bank valued her property at $600,000, while Westpac’s was $610,000.

“I wasn’t happy at all, and it was very frustrating. These banks would take me to cloud nine, saying they’d help and it wasn’t a problem. They’d give me all these numbers and bank jargon, and then they came back with a low valuation, meaning I couldn’t refinance,” she told us.

After three months of trying to work out a solution herself, Marina got a valuation of $720,000 from BankWest with Grant, one of Compare Club’s brokers.

“They got me a higher valuation, a difference of $120,000, and it was really easy.”

The impact of your property valuation

I spoke to Kate Browne, our Head of Research at Compare Club, who’s been digging into these discrepancies a bit more. She says that the wider variations in lender valuations – for the same property – are common.  

“This exacerbates the existing financial strain on Australian families and potentially jeopardises home loan approvals. This can be a blow for borrowers attempting to refinance this year, especially if they’re one of over 450,000 mortgage holders moving off their low fixed rate home loan, and facing a shocking revert rate of above 6%.”

With banks tightening their loan criteria, your property valuation directly impacts:

  • your loan-to-value ratios (LVR),

  • your borrowing capacity, 

  • the interest rate you’re offered, and 

  • whether you’ll need to pay Lender’s Mortgage Insurance (LMI). 

Any and all of the above can add thousands to your loan size, the amount you’ll have to repay, and for how long you’ll have to carry those extra costs. There are a range of factors affecting the bank valuation of your home, and not all of them are obvious. Learn more about lender lowballing home evaluations.

Getting expert help is key

Kate Browne agrees that Mark and Marina’s experiences are common. 

"Our data shows 22% of homeowners looking to refinance are more likely to be affected by a lowball valuation today than 12 months ago. And 25% of homeowners with a lowball valuation could mean the difference between getting hit with LMI 12 months ago,” she said. 

“This affects your ability to secure a loan and has a tangible impact on your financial wellbeing, from higher interest rates to additional borrowing costs."

Kate’s recommendation is to work with a mortgage broker who can identify the lenders most likely to value your home well, as this can make a difference to your home loan approval, and your ongoing loan expenses.

“It’s not just any mortgage broker; it’s about finding a good one. If the brokers don’t have a decent sized range of options to work with, it will work against you.”

Bottom line: 

  • Low property valuations can inflate your borrowing costs, resulting in higher interest rates and additional expenses such as lender's mortgage insurance (LMI). 

  • Don’t feel like you have to accept your bank’s valuation. Shop around, as some lenders may have a different view on how much your property is worth. 

  • A good mortgage broker can often make the difference, as they’ll have industry knowledge and access to some rates and lenders that you might not be able to hunt down by yourself.

Go deeper:

Financial disclaimer

The information contained on this web page is of general nature only and has been prepared without taking into consideration your objectives, needs and financial situation. You should check with a financial professional before making any decisions. Any opinions expressed within an article are those of the author and do not specifically reflect the views of Compare Club Australia Pty Ltd.