First-time buyer LTV query about valuation vs. purchase price

ekaneen

I am considering buying a first home and trying to do the sums. I realise that the better deals are offered when there is a 75% or better Loan to Value ratio. I'm fortunate that this is a possibility for me. However, I realised today that the Value is actually the mortgage company's valuation of the property - not what you pay for it. Since this valuation is apparently a 'sell it quick' value, I presume it will typically be a certain percentage less than the purchase price.

So, here's my question: what is a typical percentage? It obviously makes a big difference to the LTV if the difference between valuation and purchase is, say, 5% or 20%. Assuming I'm doing my sums correctly, to keep under the 75% LTV, I could afford 150k (purchase price) if the difference between purchase price and valuation is only 5%, but only 105k if the difference is 20%.

Any advice would be very much appreciated.

Ed.

GMS

Lenders will use the LOWER of the purchase price or valuation to calculate lending figures (unless family sale or right to buy)

If the valuation comes in less than the purchase price then you should renegotiate the purchase price. Why pay more than it is worth?

Highly unusual for the valuation to be higher than the purchase price as the lender will give the purchase figure to the valuer. Not in the valuers interest to make it higher than it needs to be

ekaneen

GMS wrote: »

If the valuation comes in less than the purchase price then you should renegotiate the purchase price. Why pay more than it is worth?

Thanks very much for such a prompt response. I'm displaying my ignorance here then, but does this mean that, essentially, you should never pay over the mortgage valuation (unless, for some reason, you really want that particular house and don't mind paying extra)? If so, then I'm clearly wrong about the mortgage company valuation being a 'sell it quick' price which is a bit lower than typical market value - as sellers would never accept it. Is this right?

Thanks again,

Ed.

GMS

You can pay what you like for a house as long as you can finance it.

If a house was valued at £100,000 and you were paying £125,000 the lender would use £100,000 as the value. Assume you wanted an 80% mortgage the lender would advance £80,000. If you wanted to add £45,000 of your own funds to it then that's up to you.

Could be seen as foolish as you would be instantly £25,000 down.

Valuers will give the market value. Remember if your valuer says it is worth less than you offer and the vendors wont reduce then the next person will most likely find themselves in the same position.

You are free to go to Tesco and pay £2 for a loaf rather than the £1.25 advertised. Strangely enough nobody ever does this but people fall head over heels with houses and lose sense of normality.

Think with your head and not your heart. It could save issues later on

ekaneen

GMS wrote: »

Valuers will give the market value. Remember if your valuer says it is worth less than you offer and the vendors wont reduce then the next person will most likely find themselves in the same position.

Ah, good point. That's very helpful, thank you.

Ed.

GMS

No problem, good luck