Mortgage offer when purchase price reduced

johnboyinsole

Hi everyone,

I've been lucky enough to receive my mortgage offer within a week of applying for it. However whilst the application was going through, I had a surveyor at the property and he said money needed spending on it immediately basically because the ground floor timber was rotten everywhere.
My main question is, if I negotiate on the price again and the vendor agrees to reduce it, what happens to my mortgage offer? Does it stay the same and I just use the extra money to fix the problem, or do I go back to the bank and they reduce the offer by the amount we negotiated?
Apologies if this is a stupid question but this is my first time buying a house.

kingstreet

If your purchase price is reducing, you need to tell your lender.

The mortgage amount may be able to remain as it was unless you're up against a loan to value limit. If it was, the mortgage amount will have to be reduced to stop you breaching the loan to value limit.

Did the required repairs have an impact on the valuation and was any retention requested?

johnboyinsole

Thanks for such a quick reply. The LTV is right on the limit so this would make it more than 85% LTV.
There was a retention but on something else, however this was removed because the works weren't big enough (gutter clearing basically). However the surveyor I had was independent from the bank's own and went into more detail on damp and timber. There were lots of little defects (unsurprisingly for the age of house) but the ground floor rotting was the only one that he said needed doing before I move in. The bank's valuation didn't notice it and probably wouldn't without lifting up a floorboard or two.

kingstreet

Ok. So there's no impact on valuation and no retention.

In this situation, you either have;-

- the vendor do the work and leave the purchase price alone or
- you agree a price reduction and do it yourself.

If you do the latter, you'll need to report the reduction to the lender as you have a mortgage product with a limit of 85% of valuation or purchase price, whichever is the lower.

For example, if the price is currently £100k with a £85k mortgage, a reduction in price to (say) £95k must be reported to the lender and the mortgage amount reduced to 85% of that, or £80,750.

johnboyinsole

Thank you kingstreet, really appreciated.

thomasdown

Hi there this happened to us! The mortgage manager at HSBC had to wait for the central mortgage branch to upload the case so he could alter it. We told him whilst the case was at underwriters and he said as long as its less then it won't be a problem he will just adjust once they have uploaded it onto the system that he could see, otherwise it was cancel the old application and start a new one which would have effected our credit history I suppose. He did say we would receive an offer in the post for the old amount £195,750 but ignore this and a day or 2 later we would get the new offer £192,600 which we should sign and send back? I don't know if you have already signed though? Then I don't know what would happen? I can't see it being a problem though if you got agreed for more and want to borrow less it's a good thing! Let us know what happens!

Thrugelmir

johnboyinsole wrote: »

The bank's valuation didn't notice it and probably wouldn't without lifting up a floorboard or two.

The surveyor representing the lender is purely looking after their interests not yours.

To protect yourself always advisable to have more than a basic survey undertaken at the outset, if the situation warrants. As it'll be you that's out of pocket not the lender.

johnboyinsole

Well I've had a full buildings survey done followed by a damp and timber specialist survey. So I know the approx costs I will be faced with. The surveyor valued the house at £10k more than what I am paying for it and the bank surveyor obviously had no problem approving the valuation for the purchase price either so I'm confident it's worth the price in its current state. However I'm still going to negotiate on the price as I'd like to use my powers as a first time buyer to get the best deal I can. It's taken me years to save up in order to meet the deposit requirements and inflated asking prices, so I want to make the best of a buyer's market. No offence to all the sellers out there
Thomas, I shall let you know what happens if I can negotiate on the price and what happens at my bank. I've already got the mortgage offer through on paper so it's just the conveyancing to finish now. If I get a reduced price, I'll see what Nationwide need me to do. As the loan will be less, I'm hoping it won't be classed as a new application and therefore another credit check!

thomasdown

johnboyinsole wrote: »

Thomas, I shall let you know what happens if I can negotiate on the price and what happens at my bank. I've already got the mortgage offer through on paper so it's just the conveyancing to finish now. If I get a reduced price, I'll see what Nationwide need me to do. As the loan will be less, I'm hoping it won't be classed as a new application and therefore another credit check!

Did you sign and send back your mortgage offer? They send 2 copies 1 for you and 1 to sign and return? Ifso I can't see it being a problem to be honest. They should just adjust the original mortgage offer and send out a new one and inform you that the old offer is in-valid?

johnboyinsole

No, I didn't need to sign it and return. I signed on the application and I've not had to sign anything further. they've already sent a copy to my solicitor and there's nothing more I need to do unless I want to cancel or let the offer expire.

kingstreet

johnboyinsole wrote: »

I've already got the mortgage offer through on paper so it's just the conveyancing to finish now. If I get a reduced price, I'll see what Nationwide need me to do. As the loan will be less, I'm hoping it won't be classed as a new application and therefore another credit check!

It won't. You'll simply tell them the new purchase price and mortgage amount and they'll issue a revised offer.

If you don't notify them, it'll get to near exchange and then your solicitor will have to tell them (as he's acting for them as well as for you!) and you'll then have to delay exchange while the new offer is prepared and issued.