Mortgage valuation - can they base it on future improvements??

Samtobuk

Need to get a house valued next week for our lender (Abbey/Santander). We will be bidding on the house at auction, and given that we are looking at 85% LTV, they will need the valuation to cover not only the lending but also our deposit (to cover their costs if repossessed and sold on at a value lower than the lending + court costs etc.)

So basically, whatever they value the property at will be our limit at the auction as it will effectively be our total spending. The house needs improving, just the usual comsmetic things (heating/kitchen/bathroom/flooring) but nothing structural. What I would like to know is, if informed that we will be upgrading the standards of the internals substantially (using some cash left over from deposit), will they base their valuation not just on the current state, but on the eventual value once the renovation has been made??

I appreciate they cannot second guess the quality of the upgrade, however will they base their valuation on a standard kitchen/bathroom upagrade, or do they have to stick rigidly to the current condition at that moment in time?? Surely they can see easy 'value-adding' mods short term to bump the value up and estimate the end value of the property??

I guess you can tell what I hope the answer is, but would appreciate anyone's experience of this.

Thanks:beer:

Dan_1976

Hi, they will value it as it is as it is a standard purchase other than being at auction.

Self builds etc can be different.

Thrugelmir

Is the house currently in a habitable state?

Conrad

Samtobuk wrote: »

Surely they can see easy 'value-adding' mods short term to bump the value up and estimate the end value of the property??

Banks view it like this;

EVERY bride and groom on thier wedding day have an expectation they will be together for all time.

About 40%+ call it wrong.

Tis the same with any 'intention' - what if your ill, what if the neighbour is bonkers, what if you lose your job, what if you become an addict / alchoholic, what if you run off with a new lover??

No lender can ever lend on 'hope' I'm afraid.

AUCTION - be very careful buying at auction with a mortgage, a lot of people lose thier deposit.

I've been in this business 19 years and I can tell you with most house purchases there are delays and complications - things you cant even imagine right now.
With auctions you MUST complete in 28 days which is very very risky.

There are a thousand reasons it may fail to complete within 28 days in which case you stand to lose a lot of money.

This is because although you may be happy with the property, the lender will have many items that need addressing and thats where the delays come.

I would only ever buy at auction with cash, never a mortgage.
Now don't be surprised if someone replies to this saying they did it with a mortgage, as that still bares no scrutinty if you consider the TYPICAL process as opposed to the lucky ones that did complete within 28 days.

ONE EXAMPLE OF A CAUSE OF DELAY (there are hundreds if not thousands of other reasons) - Lenders usualy want the legal papers to state the current owners have never been in dispute with neighbours - well what if the current owner is dead / disappeared? Rem,ember thats only 1 example

Samtobuk

You'd have to say it was 'habitable', but at the same time you would look at the ancient bathroom and kitchen and understand that they would definitely be replaced, unless you had incredibly low standards of hygiene! It is in no way derelict, but has had an old lady living there who has not modernised the place in probably 30 years, and has lived with some very basic fixtures, and had dogs all over the house (and not really cleaned it).

So, yes you 'could' move in as is and survive, but it should be obvious to the surveyor that those things need updating and replacing and would be before you'd move in. It is certainly not a case of taste and changing things becuase you don't like the look of them.

Do you think they have to take that into consideration and can price it on the renovated state??

Thanks for the replies.

VIGILANT22

They will not value how it could be....it will be done as it stands.....

Samtobuk

Conrad - thanks for the advice.

What I could do with some clarification on, is what else the lender will/might need (that could hold up completion), after they have issued the formal offer letter?

I had (prehaps naievely) assumed that they would have to have all their questions answered before they would issue the actual offer, and that then it is just a process of releasing the funds after exchange has taken place (in this case, on the day of auction).

Can you help explain what can go wrong in this regard after you have the offer letter? I would certainly not head to the auction with only an AIP, hence the reason for the original question (which I guess I have my answer to now, thanks).

Thrugelmir

Samtobuk wrote: »

Conrad - thanks for the advice.

What I could do with some clarification on, is what else the lender will/might need (that could hold up completion), after they have issued the formal offer letter?

I had (prehaps naievely) assumed that they would have to have all their questions answered before they would issue the actual offer, and that then it is just a process of releasing the funds after exchange has taken place (in this case, on the day of auction).

Can you help explain what can go wrong in this regard after you have the offer letter? I would certainly not head to the auction with only an AIP, hence the reason for the original question (which I guess I have my answer to now, thanks).

Suggest you consult a solicitor and have a discussion. Otherwise you could end up making a very expensive mistake.

Conrad

Samtobuk wrote: »

Can you help explain what can go wrong in this regard after you have the offer letter?

You won't get an offer letter without a property.

2 things;

1) Your personal details need underwriting - that part you can have a lender go into prior to findin a property but they will only usualy make basic checks on you until such time as the property is found. Once you are 'fully' proceeding on a defined property then and only then will an underwriter go into detail - sometimes thats a quick 1 hour ticking off the checklist, other times it's a 6 month marathon.

2) The property - the other side to being able to make a full mortgage offer is the security, i.e. the property itself. As I said there are a thousand different things that can cause a delay, and no matter how long I do this job I'm always confronted by new issues not encountered before.

I could give you a list but it will take me about a day to write, so you'll have to pay:rotfl: - but seriously it's pointless you having such a list anyway as you will not be able to act on the list in any event as the auction house will only ever give a fairly basic legal pack.

The point is auction property often has a 'history' and limited info available.



SUMMARY



There's a reason most auctions are populated by cash buers.

By all means have a go, you might be lucky!:j

VIGILANT22

I feel you're taking such a risk.......you're so inexperienced in the property market in general.....I can guarantee (i am very experienced)...you are giving yourself the biggest headache ever....in fact forgive me but your plans are to say the least a tad foolish.............

Samtobuk

Thanks for the blunt feedback guys, I would rather you offered untempered opinions based on your experience. That is why I am on here asking the questions, as there is no way I am going to risk £30k+ if there is a risk that it could all fall through.

The reason i am asking what may seem naive questions, is because the lander (Santander) have clearly stated that they can get me an offer letter before the auction! I have had an initial consultation, gone through the affordability bits, given them the property details (which they know is at auction), and am going back in tomorrow to complete the application ready for the valuation to take place this week (within 48hrs they claim, but lets see!). The legal pack, being completed by the vendors solicitors, I have been told will contain all the searches that would be done had I commissioned my own solicitor to do it. It remains to be seen if that throws up any more issues, but once that is in hand, I'm just not sure what else is needed for the lender to issue the letter?

I will make damn sure at tomorrow's meeting that I re-iterate this point, and check that they genuinely believe they can get me an offer on an auction property, before the actual auction. If not, you are all correct that it is bordering on foolish to continue!

Cheers