FTB Purchase Price vs Property Value

moneyspendinexpert

If I'm a first time buyer who has the opportunity to buy a repossessed flat, how does a lender view the LTV in relation to the purchase price?

I dont have much deposit, but could muster up something small if necessity required...

Some numbers may help:

Offer price - £120k

Estimated market value - £150k

the property last sold for £192k in 2006

So if I was to ask the lender for £120k, would they consider that 100% LTV?
Are they going to ask me to find £12k deposit?

Obviously I know market value is whatever someone is willing to pay, but just trying to get an idea of how it works.

Many thanks.

TMSL

You will need a 10% deposit based on purchase price as lenders will only lend you the lower of valuation or purchase price.

TrickyDicky

You can ask for however much you want and get it approved - its eventually down to what the lenders value it at whhen it comes to how much they will lend you. The biggest LTV at the moment is 90%.

If you offered 120k, and they valued the flat at this price or above, you would need a 12k deposit. (they lend you money against the purchase price in this case, and expect you to have 10% in cash). SO yes is the answer to your first question.
If they valued it less, say £100k, they would lend you a max of £90k, and you would have to find the other £30k yourself.

Let_Us_See

If you offered 120k, and they valued the flat at this price or above, you would need a 12k deposit. (they lend you money against the purchase price in this case, and expect you to have 10% in cash). SO yes is the answer to your first question.
If they valued it less, say £100k, they would lend you a max of £90k, and you would have to find the other £30k yourself.

Not true. Please see TMSL post. If a lender's valuation is £100k then you cannot proceed on a purchase with a mortgage for an agreed £120k, even if purchaser had additional £30k funds. For mortgage purposes the lender's valuation will also be the contractual purchase price (unless the lender's valuation is higher than the agreed purchase price - and I have never known that to happen) and even if you think the property is worth £120k it will make no difference.

Conrad

Lenders usualy use the lower of price paid rather than some notion of value, afterall, if it's worth £150k now, then the seller would achieve that price. If however the market can only cough up £120k, then that is THE PRICE.

Imagine you are to lend me £10000 and as security I give you a car for which I paid £12000, but I tell you I could have paid £15000. You would want to use the £12k value and not some fantasy what if price. You would wonder why if it was worth £15k, the seller had HAD TO sell for £12k.

g_attrill

Let_Us_See wrote: »

Not true. Please see TMSL post. If a lender's valuation is £100k then you cannot proceed on a purchase with a mortgage for an agreed £120k, even if purchaser had additional £30k funds. For mortgage purposes the lender's valuation will also be the contractual purchase price (unless the lender's valuation is higher than the agreed purchase price - and I have never known that to happen) and even if you think the property is worth £120k it will make no difference.

From what I've read here it's very common for lenders to allow purchases to proceed when a property is valued at less than the proposed purchase price. As TrickyDicky says, they will just offer to lend the LTV of the valuation, and state to the buyers that they will need to either find the difference and/or buy it for less.

For many people posting here that wasn't possible because they were on their limits of LTV and simply don't have the cash!