Verification required on my vendor gifted mortgage calcs

zooport

Hi there.

I'm a long time lurker to this site - I can usually find the answer to my questions already on the boards but I'm finally asking a question of my own as this one is quite specific!

I was hoping someone in the know could cast their eye over the following and confirm whether or not I have understood vendor gifting properly:

- A property was on the market at £164,950
- I had an offer accepted on it for £154,500
- The mortgage lender undertook their valuation survey which came back at £160,000
- My MAXIMUM mortgage amount borrowing is £117,300.

I need to achieve 75% LTV/ 25% deposit in order to apply for mortgage products with the beneficial rates. Vendor gifting is available of a 5% maximum.

I understand the theory behind vendor gifting, I just can't get my head around which values to use where in the calculations. Here's where the confusion starts:

What represents 'Value' in terms of LTV?
- The £154,500 offered, or
- The £160,000 valuation?

'Loan' is represented by the mortgage amount, in my case £117,300

So to find LTV, would it be:

(£117,300 / £154,500) x 100 = 75.92% LTV (does not satisfy 75%)
(£117,300 / £160,000) x 100 = 73.31% LTV (does satisfy 75%)

To achieve 25% deposit in both scenarios:

£154,500 x 25% = £38,625
£160,000 x 25% = £40,000

£160,000 valuation represents 103.56% of the offered £154,500. ie an additional £5,500 on top of the offered price.

The idea of a vendor gifted mortgage is that this £5,500 is used to supplement the required deposit, right?

So, again, on both scenarios above,

25% deposit of £38,625 - £5,500 vendor gift = £33,125 for me to pay 'up front'
25% deposit of £40,000 - £5,500 vendor gift = £34,500 for me to pay 'up front.

BUT

£154,500 x 75% = £115,875 - Satisfies maximum mortgage lending of £117,300

£160,000 x 75% = £120,000 - Does not satisfy maximum mortgage lending of £117,300 meaning that I would need to find a further £2,700 (£120,000 - £117,300) to make up the defecit.

Result:

£33,125 for me to pay 'up front' or
£34,500 + £2,700 = £37,200 for me to pay up front?

That lot makes sense to me, hopefully ift will to you!

Thanks in advance

GMS

zooport wrote: »

Hi there.

I'm a long time lurker to this site - I can usually find the answer to my questions already on the boards but I'm finally asking a question of my own as this one is quite specific!

I was hoping someone in the know could cast their eye over the following and confirm whether or not I have understood vendor gifting properly:

- A property was on the market at £164,950
- I had an offer accepted on it for £154,500
- The mortgage lender undertook their valuation survey which came back at £160,000
- My MAXIMUM mortgage amount borrowing is £117,300.

I need to achieve 75% LTV/ 25% deposit in order to apply for mortgage products with the beneficial rates. Vendor gifting is available of a 5% maximum.

I understand the theory behind vendor gifting, I just can't get my head around which values to use where in the calculations. Here's where the confusion starts:

What represents 'Value' in terms of LTV?
- The £154,500 offered, or
- The £160,000 valuation?

'Loan' is represented by the mortgage amount, in my case £117,300

So to find LTV, would it be:

(£117,300 / £154,500) x 100 = 75.92% LTV (does not satisfy 75%)
(£117,300 / £160,000) x 100 = 73.31% LTV (does satisfy 75%)

To achieve 25% deposit in both scenarios:

£154,500 x 25% = £38,625
£160,000 x 25% = £40,000

£160,000 valuation represents 103.56% of the offered £154,500. ie an additional £5,500 on top of the offered price.

The idea of a vendor gifted mortgage is that this £5,500 is used to supplement the required deposit, right?

So, again, on both scenarios above,

25% deposit of £38,625 - £5,500 vendor gift = £33,125 for me to pay 'up front'
25% deposit of £40,000 - £5,500 vendor gift = £34,500 for me to pay 'up front.

BUT

£154,500 x 75% = £115,875 - Satisfies maximum mortgage lending of £117,300

£160,000 x 75% = £120,000 - Does not satisfy maximum mortgage lending of £117,300 meaning that I would need to find a further £2,700 (£120,000 - £117,300) to make up the defecit.

Result:

£33,125 for me to pay 'up front' or
£34,500 + £2,700 = £37,200 for me to pay up front?

That lot makes sense to me, hopefully ift will to you!

Thanks in advance

What represents 'Value' in terms of LTV?
- The £154,500 offered, or
- The £160,000 valuation?

The LOWER of the purchase price or the valuation will determine the figure to use, so £154,500

75% would be £115,875 which I assume would be the mortgage.

If the lender allows a 5% vendor deposit you would need to find:

£154,500 - £115,875 = £38,625 - £7,725 (5% vendor deposit based on purchase price) = £30,900 of own funds.

zooport

Thank you very much for the quick response.

But there lies the problem, the mortgage lender can't offer the maximum 5% vendor gift because the valuation came back at only 3.56% above the offer price.

So based on what you say:

£154,500 - £115,875 = £38,625 - £5,500 (3.56% vendor deposit based on purchase price proportional to valuation price) = £33,125 of own funds

Is that correct?

GMS

zooport wrote: »

Thank you very much for the quick response.

But there lies the problem, the mortgage lender can't offer the maximum 5% vendor gift because the valuation came back at only 3.56% above the offer price.

So based on what you say:

£154,500 - £115,875 = £38,625 - £5,500 (3.56% vendor deposit based on purchase price proportional to valuation price) = £33,125 of own funds

Is that correct?

Valuation does not come into it.

Lending will be based on the LOWER of the valuation OR Purchase Price.

zooport

The mortgage advisor tells me they can only offer vendor gifting to a maximum of the valuation?

Thrugelmir

Save for a few more months and increase the size of your deposit.

zooport

the house will be gone then?

GMS

zooport wrote: »

The mortgage advisor tells me they can only offer vendor gifting to a maximum of the valuation?

Bank adviser or independent?

Lenders will not use the valuation for calculations when the purchase price is lower unless it is a Right to Buy or a Family Gifted Deposit.

Yours is a vendor gift so lending will be against the LOWER figure.

zooport

Bank advisor. So regardless of what the valuation amount has come back at, the lender can still work on accepted offer + 5%?

So in my particular case, even though the valuation has come back at £160,000, the lender can still offer me £154,500 + 5% vendor gift = £162,225

GMS

zooport wrote: »

Bank advisor. So regardless of what the valuation amount has come back at, the lender can still work on accepted offer + 5%?

So in my particular case, even though the valuation has come back at £160,000, the lender can still offer me £154,500 + 5% vendor gift = £162,225

NO.

The figure used for calculation is the LOWER of the Purchase Price or Valuation.

What is the Purchase Price?

zooport

Sorry. Confused! Purchase price of £154,500

edit: Hang on, I think I know where the confusion is arising.

The "purchase price" was going to be £162,225 (£154,500 + 5%)

But the vendor was going to actually recive £154,500. My problem has arisen because the valuation has come back at £160,000, ie less than the inflated purchase price.