The Bank's valuation is 20% under proposed purchase price

AdrianC · 8 July 2017 at 11:55AM

ja3h wrote: »

So I'll just use figures now as the percentages are getting confusing. Initially we were told/thought that the property is worth £600k. We had agreed to buy it for £500k under that assumption and pending valuations etc. The valuation has come back and as it's a leasehold maisonette with under 70 years left on the lease it's been valued at £450k, with the bank telling us it is valued at £500k with an extended lease. My relative is in the process of extending the lease at the moment.
...
Could the bank value it a whole £100k under what the expected market value is?

Very easily!

So - right now, the bank's surveyor says it's worth £450k with a 70yr lease. It must be borderline unmortgageable with a lease that short, anyway, so you're ahead of the game.

BUT... That's not actually what you'd be buying, is it? Your relative is extending the lease before purchase. So what you'll be buying is the property with a long lease, which the surveyor agrees will be worth £500k.

What mortgage amount have you actually applied for? What LTV? A £450k mortgage on a £500k property would be 90%, £475k would be 95%. If you've applied for a £500k mortgage, then that would be 100%, and that ain't going to happen...

Remember, the lender want to know they're not lending money against a total pup. If they have to repossess, they need to know that they've got a reasonable chance of selling the place for enough to clear what you owe them. If it sells for less, you still owe them the difference...

The £600k figure has clearly been plucked from somebody's chuff.

andrewjb3 · 8 July 2017 at 12:02PM

If you apply for a mortgage, and say you're paying 600k, and they're happy it's worth that, the mortgage valuation will say 600k. If they're worried about the short lease, they might take 50k off for that.

If you apply for a mortgage and say you're paying 500k, they'll be very happy with that. And the valuation will probably say 500k. But its a short lease, so they take off the same 50k to get 450k.

So.. if the valuation you're getting is just for mortgage terms, it might not be a 'real' valuation. It's just the mortgage surveyor agreeing that it's worth [at least] what you're paying for. It's common that the valuation just happens to match exactly what you're offered to pay for the property!

ja3h · 8 July 2017 at 12:21PM

Thrugelmir wrote: »

Market value is subjective. As it is only what someone might pay for a property not actually will. Perhaps try a couple of different EA's now and see what their view is.

What's the issue with the Freehold?

The issue was the share of the freehold was incorrect, the ground floor flat had the previous owner on as the freeholder, not the current owner that bought it 10 years ago. This has been resolved now.

AdrianC wrote: »

What mortgage amount have you actually applied for? What LTV? A £450k mortgage on a £500k property would be 90%, £475k would be 95%. If you've applied for a £500k mortgage, then that would be 100%, and that ain't going to happen...

Remember, the lender want to know they're not lending money against a total pup. If they have to repossess, they need to know that they've got a reasonable chance of selling the place for enough to clear what you owe them. If it sells for less, you still owe them the difference...

The £600k figure has clearly been plucked from somebody's chuff.

Applied for a mortgage of £500k. We've been saving for a while now and we're intending on buying a place this year anyway so we have a good amount of deposit, the LTV is 79%.

andrewjb3 wrote: »

If you apply for a mortgage, and say you're paying 600k, and they're happy it's worth that, the mortgage valuation will say 600k. If they're worried about the short lease, they might take 50k off for that.

If you apply for a mortgage and say you're paying 500k, they'll be very happy with that. And the valuation will probably say 500k. But its a short lease, so they take off the same 50k to get 450k.

So.. if the valuation you're getting is just for mortgage terms, it might not be a 'real' valuation. It's just the mortgage surveyor agreeing that it's worth [at least] what you're paying for. It's common that the valuation just happens to match exactly what you're offered to pay for the property!

Ok, I get what you mean but, if let's say the property is worth £600k, and it has a short lease - why wouldn't the bank think, it's got a short lease but it's worth £600k so let's give them their £500k mortgage? Why did they decide to go £50k under what we wanted to borrow instead?

AdrianC · 8 July 2017 at 12:25PM

ja3h wrote: »

Applied for a mortgage of £500k. We've been saving for a while now and we're intending on buying a place this year anyway so we have a good amount of deposit, the LTV is 79%.

Not at a £500k valuation, it isn't... That's a 100% LTV mortgage.

£500k borrowed with a 79% LTV would mean a purchase price of over £630k. If you've got that £130k deposit, then you only need a £370k mortgage for a £500k purchase price - or 74% LTV.

Ok, I get what you mean but, if let's say the property is worth £600k, and it has a short lease - why wouldn't the bank think, it's got a short lease but it's worth £600k so let's give them there £500k mortgage? Why did they decide to go £50k under what we wanted to borrow?

Simple. The lender don't think it's worth £600k...

ja3h · 8 July 2017 at 12:35PM

AdrianC wrote: »

Not at a £500k valuation, it isn't... That's a 100% LTV mortgage.

£500k borrowed with a 79% LTV would mean a purchase price of over £630k. If you've got that £130k deposit, then you only need a £370k mortgage for a £500k purchase price - or 74% LTV.

Simple. The lender don't think it's worth £600k...

Whoops, we're borrowing £395k - £105k is our own deposit towards it.

Yeah, the lender must not think it's worth £600k.

AdrianC · 8 July 2017 at 12:47PM

ja3h wrote: »

Whoops, we're borrowing £395k - £105k is our own deposit towards it.

OK, so the only question is over the LTV - and that's well within normal bounds. Just under 80%.
Even if you can't persuade the vendor that £500k is a realistic figure, you've got some scope for movement. If you were to pay £580k, borrowing £475k, the bank would view that as 95% LTV against their £500k value.

Yeah, the lender must not think it's worth £600k.

Well, yes. You know that - you told us that they think it's worth £450k with a short lease, £500k extended. That's precisely what their valuation is for.

sheff6107 · 8 July 2017 at 2:56PM

Remember your relatives will never be able to sell it to anyone other than a cash buyer if that's the valuation.

ja3h · 8 July 2017 at 3:32PM

Thanks for the responses, I've reached out to Purple Bricks who will be over tomorrow. I'll sit down with my relative tomorrow to talk everything through.

I've found these properties in the same area and a similar size (995² ft). Our property needs attention to the sash windows (flagged on homebuyers report), no garden and it needs a new kitchen:
(I can't post links)
- £585k - rightmove/house-prices/detailMatching.html?prop=54580228&sale=54769025&country=englan
- £540k - rightmove/house-prices/detailMatching.html?prop=57111814&sale=89675325&country=england
- £575k - rightmove/house-prices/detailMatching.html?prop=58267165&sale=89915106&country=england

Then there is this on the market for £615k - zoopla/for-sale/details/44061198

Tiners · 8 July 2017 at 4:09PM

''reached out''... Someones been watching too much of The Sopranos.

Thrugelmir · 8 July 2017 at 6:05PM

ja3h wrote: »

I've found these properties in the same area and a similar size (995² ft).

Property isn't valued on size alone.

PLEASE READ BEFORE POSTING

The Bank's valuation is 20% under proposed purchase price

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