skip to log on skip to main content
VoiceOver users please use the tab key when navigating expanded menus
Article related to:

Buying and settlement

Why bank valuation and purchase price can differ


2017-11-20 05:30

When you buy a property you might assume you’ve paid market value for it. More often than not you’d be right. But in some cases your mortgage lender may value the property at less than the purchase price. Here’s an explanation of why this occurs and what to do if it happens to you.

The bank valuation

Let’s say you’ve bought your first home and now want to finalise your loan. Before the lender offers you unconditional approval they may send an independent professional to value the property.

Lenders do this because they use your property as security for the loan. In other words, if you default on your loan, the lender has the right to sell the property to recover the outstanding loan amount.

Sometimes the valuer may estimate the market value of the property is lower than the purchase price. Let’s look more closely at some scenarios where this may happen.

Off-the-plan apartments

If you’re buying an off-the-plan apartment, it’s a good idea to remember that the lender is only able to value the finished property. Completion may be well over a year after you sign the contract and place a deposit.

There is a risk that property values in the area may change over the construction period. If they do, the bank valuation may be lower than your purchase price.

There is also a risk that the dimensions of the finished apartment may vary from the plans. This situation may result in a bank valuation that’s less than the purchase price.

Buying unregistered land

A similar situation may occur in new estates when developers offer unregistered land for sale. It may take several years for the developer to build the infrastructure necessary to register the land.

In this case, the lender will need to reassess your application before settlement. Over the time since you paid your deposit, values in the area may have changed, resulting in a valuation lower than your purchase price.

Find out more about what to consider when buying land.

What if the lender's valuation is lower than the purchase price?

As we mentioned earlier, the lender values your property to see whether it provides enough security against the loan amount. To help assess their risk, lenders use a measure called the loan-to-value ratio (LVR).

Many lenders will not lend if the LVR is more than 95%. And if the LVR is more than 80% they will ask you to pay Lenders Mortgage Insurance (LMI).

Here are some examples of what could happen if a lender’s valuation affects your LVR:

The LVR is still below 80%

  • Your purchase price is $500,000.
  • You need to borrow $300,000.
  • The lender’s valuation is $450,000.
  • LVR is 300,000 / 450,000 = 67%.

In this case the loan application would still go ahead and you wouldn’t have to pay LMI.

The LVR is still below 80%

  • Your purchase price is $600,000.
  • You need to borrow $420,000.
  • The lender’s valuation is $500,000.
  • LVR is 420,000/500,000 = 84%.

The loan may still go ahead but you will have to pay LMI. You could add the LMI cost to your loan if you have the income to service the larger loan amount.

To sum up 

  • The purchase price and the bank valuation might be different.
  • The bank valuation is used to calculate your LVR.
Why bank valuation and purchase price can differ
Home Loans Specialist

Related articles

  • Buying and settlement

    Do you need a conveyancer?

    Home Loans Specialist ANZ

    When you transfer a home into your name, you need to check that no legal issues will affect your ownership or use of the property. You could consider hiring an experienced professional to conduct this transfer process, also known as conveyancing.

    2017-11-15 00:00
  • Buying and settlement

    Seal the deal: When and how to pay your deposit

    Home Loans Specialist ANZ

    Once you have your deposit sorted, whether you've saved it or using equity from your existing property, what do you actually do with it? Let's look at two of the more common purchase scenarios to see when, how and to whom you would pay the deposit.

    2017-11-14 05:30

Connect with our home loan specialists or apply

Need to speak to a specialist?

Provide us with your details and one of our home loan specialists will get in touch. They can discuss issues including:

  • Applying for a home loan
  • Managing your existing loan
  • Refinancing your home loan
  • Interest rate enquiry

As well as any other home loan queries you may have.

clock icon

Call back time is 1-3 business days.

Request a call back


Quick start application

Begin your home loan application journey by providing details about:

  • You
  • Your financial situation
  • The loan you're applying for

One of our home loan specialists will then be in touch to progress with your application.

clock icon

Call back time is 1-3 business days.

Apply online


Call us

Monday - Friday 8am to 8pm (Sydney/Melbourne time)

1800 100 641  


Other ways to get in touch

Meet with a mobile lenderdisclaimer

Book a branch appointment

Book a First Home Buyer Coach

You can also chat to an ANZ accredited broker for help with your home buying, investing or refinancing needs.

The information on this page does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you and read the relevant terms and conditionsProduct Disclosure Statement and the ANZ Financial Services Guide (PDF) before acquiring any product. 

Applications for credit subject to approval. Terms and conditions available on application. Fees and charges apply. Australian credit licence number 234527.

ANZ Mobile Lenders operate as an independently operated ANZ Mortgage Solutions franchise of Australia and New Zealand Banking Group Limited (ANZ) ABN 11 005 357 522. Australian Credit Licence Number 234527.