Confusion as to valuation/ undervalued?

goldbyron

I am just wondering what happens if the valuation of the property we are buying comes back as less? We had our offer of 402,500 accepted (it was marketed at 450,000) and we have instructed a valuation/survey. I know that there are few houses in the area topping the 385k mark but this house has been extended to twice the size although the number of bedrooms are the same (main bedroom is massive, with 2 doubles, and spacious landing). We have a 51% ltv mortgage and just wondering what happens if say the value comes out at 375k. Do we have to make up the shortfall (if the seller won't budge) or can we just accept a lower ltv rate? The latter would be okay as the mortgage we have applied for is 75% ltv so there is plenty to play with. So we still get the 202,500 lent with the 200,000 deposit but at a higher ltv such as 60% as it is only valued at 365-375 as an example. Anyone who can put my mind at rest....??? Btw I am not averse to getting some money off but we already negotiated 47.5k off and we aren't planning on going anywhere for at least 10 years.

Thanks

firstaspect

The problem is that the mortgage lender wants to make sure they can recoup their costs if things go wrong (As in if you stop paying the mortgage they will get all their money back by selling the house). So if they value the house at 385,000 then minus your 200,000 deposit means they are likely to only lend you 185,000.

Richard_Webster

The problem is that the mortgage lender wants to make sure they can recoup their costs if things go wrong (As in if you stop paying the mortgage they will get all their money back by selling the house). So if they value the house at 385,000 then minus your 200,000 deposit means they are likely to only lend you 185,000.

Lender won't look at size of "deposit" but at LTV ratio. If "deal" available up to 75% then logically as long as this is not exceeded they will still lend the amount originally requested which was £202,500 if understand the original post correctly.

firstaspect

Richard_Webster wrote: »

Lender won't look at size of "deposit" but at LTV ratio. If "deal" available up to 75% then logically as long as this is not exceeded they will still lend the amount originally requested which was £202,500 if understand the original post correctly.

Really? I never knew it worked like that. So the lender would be happy to lend more money than they would likely get back if they received no mortgage payments and had to sell the house?

StuHolmes

My money is on a valuation of exactly £402,500. Not once have we had a valuation even slightly different to the offer.

Richard_Webster

Really? I never knew it worked like that. So the lender would be happy to lend more money than they would likely get back if they received no mortgage payments and had to sell the house?

No don't know why you thought that. There is no immediate prospect of that happening here.

OP wanted to borrow £202,500 on a property being purchased for £402,500. (50.3% LTV)

If lender values it at £385,000 and still lends £202,500 that is 52.6% LTV.

If lender values it at £300,000 and still lends £202,500 that is 67.5% LTV.

If Lender will lend up to 75% the value could still go down further but lets say they lend £202,500 on a value of £300K then if they repossess and sell they still have £97,500 of equity so what is the problem? I don't understand how firstaspect thinks there would be a loss to the lender.

In theory any property could go down in value so a property worth £400K could lose a lot of value in a property slump and only be worth £200K. This has happened but it is a point that lenders have to take a a view about and is the reason that loans of more than 90% are almost impossible to obtain nowaways - but in this case the lender decided it was prepared to lend 75%.