LTV on house purchase

sjbu

Hi,

Something I don't understand...maybe I am bringing up old discussions but here goes

When you purchase a house, the valuer for the lender will value the property based on the purchase price - why?

If I have bought a property for 75k, but the 'true' value is 100k (say I got a discount, or quick sale price), why should I my LTV be based on the purchase price as apose to the true value?

so I would pay a higher % interested rate, because the LTV is higher, when in theory - it's not

or have I got that completely wrong?

cheers

beecher2

The true value of the house is what it is sold for so in your case it is 75k. If you're confident it is worth more then you could always remortgage in the future to lower your LTV.

The only time it is different is when a close relative sells you the house and you can use a gifted deposit.

Thrugelmir

The value is the consideration paid for the property at the time of purchase.

The purpose of a formal valuation is to inform a lender whether a property is suitable security for a mortgage advance. Not the precise value of the property.

kingstreet

The lender's main concern is getting its money back in the event of repossession and ensuring the property is adequate security for the loan.

If you want a market valuation, you need a more indepth survey carried out on your behalf, not on the lender's.

sjbu

Thanks for the replies and I do see what you are all saying - but I still find it a little frustrating that the repayment I pay every month is based on a LTV which isn't based on the true value, only the value for mortgage purposes. But as somebody else said, I could get a revaluation done in a few months as presumably they would then revalue it based on the market and surrounding properties without the start point of the purchase price - which would then lower the LTV

cm233lh

Get this idea of "true value" out of your head. The only way to value an asset is to sell it and see what someone else is prepared to pay for it. All this stuff about it's worth 100k, but no one's prepared to buy it, so I've reduced it to 75k for a quick sale is just bunk. If they couldn't get a buyer at 100k then it aint worth 100k. Full stop. If you agreed to pay 75k for it and they were prepared to accept 75k for it then 75k was the value when you did that transaction.
It's quite difficult to get a fair value for a house sometimes because they're all unique, and if you're not really selling then you can't find out what someone else would really pay for it. But if you've recently bought the house then its "true value" is what you truely agreed with the seller was a fair price for it. If it was worth more they would have asked for more and you (or someone else) would have been paid more.