LTV - Valuation or price payed?

Happysnapper

I called Halifax to ask what figure was used when calculating LTV, they said that it was the price that we pay or the valuation, whichever was less? We are in Scotland and at present many properties are selling under their Home Report Valuation.
Is this correct, as it seems that the banks win here again? If a buyer manages to negotiate a bargain then they don't get the benefit as the banks rates increase with the more LTV they can get from you.

Does anyone know if this is the norm with all lenders?

kingstreet

Yes. It is, and always has been;-

"the lower of purchase price or valuation"

and this ensures the purchaser never overpays nor takes out a mortgage for more than the property is worth.

Happysnapper

Sorry for the spelling mistake (head hung in shame).
I understand that it protects against paying too much in principle as this is where 125% mortgages contributed to the mess we are in. However, if you are remortgaging then the property is valued and LTV will determine which deal you can get so why is this not the case when buying a new property?

fiffio

thjis is close to a question i was going to ask,

We bought 18 months ago on a 2 year fixed. We paid 14k under the home report valuation of 150k.

If I got to look at new fixed rates with various lenders will my LTV be based on the original purchase price or is a new valuation done and the LTV based on that?

gingeralan

fiffio wrote: »

thjis is close to a question i was going to ask,

We bought 18 months ago on a 2 year fixed. We paid 14k under the home report valuation of 150k.

If I got to look at new fixed rates with various lenders will my LTV be based on the original purchase price or is a new valuation done and the LTV based on that?

A remortgage with a new lender would involve a new valuation and the ltv would be based on that figure. With your existing lender I think it depends, if borrowing more they would probably do another valuation, but if not they would probably just work on the figures they already have, ie lower of original two.

DannyboyMidlands

Happysnapper wrote: »

Sorry for the spelling mistake (head hung in shame).
I understand that it protects against paying too much in principle as this is where 125% mortgages contributed to the mess we are in. However, if you are remortgaging then the property is valued and LTV will determine which deal you can get so why is this not the case when buying a new property?

Because if you are buying a property the lender can know for certain what it is worth. The actual value, by definition, is what you end up paying for it.

The valuation is just a guestimate.

Why would the lender use a guestimate when they have the actual value to hand?

Obviously with a remortgage they are unable to test the valuation by selling the property so have no option but to go with the guestimate.

kingstreet

By purchasing for a value below that of the HomeReport, you set the value of the property at that time. As a property is worth what someone is prepared to pay for it, the HomeReport only sets a guide, it can't be a definitive valuation, as that has to reflect the vendor's need to sell and the purchaser's need to buy.

When you remortgage, the lender will normally have a surveyor inspect the property to ensure the property is good security for the loan and worth what you think, or not, as the case may be.

In the case of a new deal with your existing lender, there may be options more suitable than the usual "indexed" valuation the lender will offer. Halifax, for example, will allow the borrower an indexed valuation, if that isn't enough, a surveyor can be paid to do a "drive-by" or for a higher fee, an internal inspection can be carried out, same as that done for a remortgage.

As the borrower picks up the tab for the valuation, it's prudent to consider the financial climate and if repairs/improvements have been carried out and if these will truly add value.

Could have saved myself a job. Danny posted that while I was typing.

Conrad

fiffio wrote: »

If I got to look at new fixed rates with various lenders will my LTV be based on the original purchase price or is a new valuation done and the LTV based on that?

The reason for this logic is that a price paid speaks louder than a supposed theoretical valuers opinion.

You were prepared to pay less than the supposed valuation meaning it is felt other buyers would similarly take the same view to you when it comes to actualised REAL value perceptions.

It's like these people who tell me they got a bargain car but then grumble when they want to sell it for an unbargain price themselves, dohhh!!

Conrad

DannyboyMidlands wrote: »

The actual value, by definition, is what you end up paying for it.

Yes, I often have owners tell me thier particular pad is worth more than they paid for it! It's the same personality type that think thier sprogs have super special talents!