Need mortgage but house worth more than what is needed.

jdq2rp

Hi there,

Myself and my other half are buying a property worth £249,000 off her parents. They thankfully have offered it to us for £130,000.

We are first-time buyers. We are both professionals with reasonable incomes and good credit histories.

Our question is this: Can we make that extra value of the house that is not included in the asking price somehow count towards, or take the place of, the deposit for the mortgage itself?

Grateful for any advice.

Thanks,

Jer.

izools

DELETED Due to my being a muppet

adwat

Hi,

Not as far as I'm aware. Whatever the amount you buy for they will loan you a maximum of e.g. 90% of that amount, leaving you to find the remaining 10% as a deposit.

I think the best thing for you to try is speak to either your lender or conveyancer to see if what you ask is possible - it would be great if it is, and I don't see why a lender shouldn't be able to take the low selling price into account - after all it's to their benefit that you'll have lots of equity from day one; less risk to them.

Good luck.

maninthestreet

The lender will have a maximum percentage they will lend on the lower of either the propery value or the purchase price of the property.
So, if the maximum percentage is 90%, and the purchase price is £130,000, you will need at least £13,000 for the deposit.

beecher2

izools wrote: »

Well yeah, that's how it works!

When you see a mortgage offered on a website, you often see a "Max LTV" figure. This might be 90%, so the lender will lend up to 90% of the property value.

Where the difference in property value and max LTV comes from is irrelevant, it can be in the form of a cash deposit, or in the form of a good deal. Doesn't matter.
.

this isn't true - LTV is calculated from whatever is lowest, the value or the amount paid.

However in the OP's case the vendor is a close relative so they should be able to use a gifted deposit. Best to see a mortgage advisor to see what their LTV would be.

izools

DELETED Due to my being a muppet

beecher2

izools wrote: »

This is incorrect adwat.

The lender doesn't lend a maximum percentage of the purchase price, they lend a maximum percentage of the property value.

If you buy a property worth £100,000 and look at a mortgage with an LTV of up to 75%, the lender will lend up to £75,000.

If the seller agrees to sell to you at £75,000, you don't need a deposit, if they want closer to the actual value, you need to stup it up.

That's what LTV means - "Loan to Value".

So OP, you already have a massive (47.8%) deposit - in the form of the equity

Sorry but it is you who is incorrect. LTV is calculated using whatever is lowest - the valuation or the price paid. You don't have an LTV of 75% if you buy a house for £75,000 with no deposit, regardless of what it is valued at.

Best not to ROFL when you've got it wrong.

izools

That doesn't make sense.

So "Loan to Value" doesn't mean "Loan to Value"?

I might have just made myself look like a complete pillock but seriously, Loan to Value doesn't actually mean that?

Surely there's a clear differentiation between "Value" and "Cost". If I buy a £10 note for £2, it's value is still £10. Surely that's incorrect terminology used by the lenders?

EDIT: If I tell nationwide I'm a FTB, buying a property worth £249,000 for £130,000 it says I have an LTV of 52%.



EDIT: Ok right, yep, you're all right, I'm a muppet, sorry. I'll get my coat.

Gotta say though, seems to be flavoured false advertising to me. LTV and Loan to Purchase Price are two destinctly separate things and advertising shouldn't confuse the two. I guess to Nationwide my £10 bought for £2 is only worth £2, huh?

InMyDreams

izools wrote: »

Gotta say though, seems to be flavoured false advertising to me. LTV and Loan to Purchase Price are two destinctly separate things and advertising shouldn't confuse the two. I guess to Nationwide my £10 bought for £2 is only worth £2, huh?

Who would 'sell' you a tenner for £2 though? That doesn't make any sense.

The definition of 'value' is what someone is prepared to pay. So the true value can't be determined until the house is bought. A so-called valuation is just an indication of what that might be until such a time that money actually changes hands and the actual value can then be determined. When remortgaging, since the house isn't actually being sold, a valuation is all that they have to go on.

The OP's case, as Beecher already said, could be an exception to the rule because it is reasonable to accept that the seller is indeed selling below market value. This is believable because it is not out of the question that a parent would gift a child £120K.

Other than in this sort of exceptional circumstance, it wouldn't make sense to lend on anything other than the purchase price. How else would you define 'value'?

Edited to add: 'Loan to value' does mean 'loan to value'. Nowhere advertises 'loan to valuation'.

iwantasmallholding

I am sure there will be a way via the soliciters, ie when you exchange contracts, exchange in such a way that your parents agree to give you the deposit as cash back on completion. Will mean borrowing a deposite on top of the mortgage or else the parents will be down 13k, but you will get your house.

jdq2rp

Hello all.

Just wanted to update you.

Through L&C as brokers we were able to get a "concessionary mortgage" through Abbey/Santander, who are happy to do these types of mortgage.

The property was valued at 220k. We asked for 130k, the rest having been gifted to us by my other half's parents.

I have to say it was all a fairly painless process. Most importantly we didn't have to come up with a cash deposit. They are happy to accept the difference in the asking vs the actual price as this. Equally this large Loan to Value ratio meant we were able to get the best deals (2 year tracker).

The chap at L&C said that he deals with roughly one per month of this type of sitiuation.

Many thanks for you replies and I hope this may be useful to others in the future.

Regards,

Jerry.