10% Deposit

hillwalker2004

Hello all, bit of a lurker here for some time but never registered until now.

I have some friends who have a mortgage offer, but I think they have got the wrong end of the stick and was wondering what others think on this forum.

They are first time buyers and have been offered a 90% mortgage with HBOS. They have an offer accepted on a property of £130k - as a result my understanding was that they need £13k cash/equity up front.

The £130k for the property is an absolute steal, even in the current market. As a result they are hoping for a property valuation of perhaps 10k more than this and they then intend to make up the shortfall with cash.

I remember when I got my mortgage albeit a couple of years ago the valuer said the property was worth 143.5k, when by chance (if you call it that!) that was the same amount i had offered. What are the chances of the valuer saying it is worth over £130k? I could see the valuer doing this if the property was clearly worth more than it is, but this is only 10k we are talking about?

Do you think they have got the wrong end of the stick? I dont want them to get disappointed, so have not said anything to them.

Does anyone have any idea of what the reality of the situation will be?

miss_undastood

I got a 3 bed semi for less than 100k a few months ago. The house next door sold last summer for 150k, and one round the corner which is identical is currently on the market for 165k.

For my survey the value was the exact price i paid. I guess their assumption is it is only worth what someone will pay for it. I know that my house is worth in the region of 130k even in the current market conditions.
If they'd have valued it at the 'true' value I'd have got a storming mortgage rate, but it is based upon the loan/purchase price rather than the true value.

Sorry to be the bearer of bad news, but this is how it was in my case.....

JayZed

So, they want the lender to lend them £126K on the understanding that the sale price is £140K - but actually the sale price is only £130K?

I would suggest that they get a bent solicitor to do their conveyancing, since they are intending to commit mortgage fraud. They might also want to look into the penalties for committing mortgage fraud.

payless

Mortgage calculated on the lower of valuation or purchase price .

hillwalker2004

JayZed wrote: »

So, they want the lender to lend them £126K on the understanding that the sale price is £140K - but actually the sale price is only £130K?

I would suggest that they get a bent solicitor to do their conveyancing, since they are intending to commit mortgage fraud. They might also want to look into the penalties for committing mortgage fraud.

You have mis-understood or are being antagonistic. They hope it gets valued at £140k and therefore 90% of this would be £126k. As they have offered £130k they think there will be 10k of equity in the house straight away, so they only need to make up the shortfall of 4k in cash.

To be honest I just think that the valuer will come back with it being worth £130k, so their mortgage will be £117k.

domcastro

There was a thread on here recently from a valuator (?). He said that they only note if the valuation is under the purchase price. So, if he thinks it's worth 140 when it was bought for 150 - this effects the LoanToValue %. If the property was worth 140 but the buyer paid 130 - he would make the valuation at price paid - 130. This is because all the banks need to know is that the LTV is at least what the buyer has specified

beecher

hillwalker2004 wrote: »

You have mis-understood or are being antagonistic. They hope it gets valued at £140k and therefore 90% of this would be £126k. As they have offered £130k they think there will be 10k of equity in the house straight away, so they only need to make up the shortfall of 4k in cash.

To be honest I just think that the valuer will come back with it being worth £130k, so their mortgage will be £117k.

It doesn't work that way. If they're paying £130k, they will only get a mortgage of £117k regardless of what it is valued at.

cranezoe

LTV is definitely classed as the LOWER of the valuation or purchase price.

A valuation therefore will never come back as saying this house is worth more. If it is worth more the valuation will just say this is worth what you have offered.
therefore the mortgage would be based on what they have offered and they will have to find the 10%.

If the valuation comes back that the house is not worth 130k then they need to re-offer in light of it or I suppose find more deposit.

You can let them know that they definitey need £13k. will they be able to?

JayZed

hillwalker2004 wrote: »

You have mis-understood or are being antagonistic. They hope it gets valued at £140k and therefore 90% of this would be £126k. As they have offered £130k they think there will be 10k of equity in the house straight away, so they only need to make up the shortfall of 4k in cash.

To be honest I just think that the valuer will come back with it being worth £130k, so their mortgage will be £117k.

I didn't mean to be antagonistic, but I was being flippant - I do realise that they are not deliberately trying to commit mortgage fraud. However, they do misunderstand the way it works - they will get 90% of the purchase price, unless the valuation is lower than the purchase price.

hillwalker2004

cranezoe wrote: »

LTV is definitely classed as the LOWER of the valuation or purchase price.

A valuation therefore will never come back as saying this house is worth more. If it is worth more the valuation will just say this is worth what you have offered.
therefore the mortgage would be based on what they have offered and they will have to find the 10%.

If the valuation comes back that the house is not worth 130k then they need to re-offer in light of it or I suppose find more deposit.

You can let them know that they definitey need £13k. will they be able to?

I would say it is highly unlikely they will be able to stump up the cash. I feel sorry for the current owners, as I believe they have had the chain collapse a couple of times before. I kinda feel sorry for my friends as they will lose out on the valuation fee. I think they are slightly naive, but probably hasnt been helped by the mortgage advisor at the bank who has either led them astray, or they have completely mis understood what they have been told.


Anyway, thanks for the replies.