Borrowing %

CarlI

I am trying to do some budgeting to work out what I can afford to pay on a mortgage. I am a first time buyer and in no rush to get in to a property.

The amount borrowed on a mortgage is obviously a fairly simple calculation to work out but I am unsure on the details of this. Is the borrowing amount worked out against the total value of the mortgage or against the value of the property as valued by the mortgager/third party?

HappyMJ

Buy house worth £100,000 and a 75% LVR mortgage would then be a mortgage of up to £75,000. As long as the mortgage valuer agrees the price you paid is OK then that is the value of the property. If the mortgage valuer thinks you have overpaid and adjusts the value down to £90,000 then you will have to go back to the vendor and renegotiate the price or pull out.

CarlI

Ok so the reason I was asking this question is that with me not being in a rush to be in a property I could put in a lower offer on a property and wait on the offer.

If I managed to get the property under value, say I got a property valued at £100,000 for 90,000 and have 10,000 deposit, is my LTV 80%?

HappyMJ

CarlI wrote: »

Ok so the reason I was asking this question is that with me not being in a rush to be in a property I could put in a lower offer on a property and wait on the offer.

If I managed to get the property under value, say I got a property valued at £100,000 for 90,000 and have 10,000 deposit, is my LTV 80%?

The property valuer will never increase the value above the offer you make. If you offer £90,000 then it is worth £90,000. You may feel like it is worth £100,000 and got yourself a bargain but if it was then the vendor could have sold it to someone else for £100,000 and the reason they don't is that it isn't worth that much.

CarlI

Thanks for the quick, clear repsonse.

The way I understand this getting a property cheaper would obviously be a benefit in itself. Also if I could take out a relatively short term mortgage, would the property be revalued when remortgaging?

Assuming the property stayed the same price during this mortgage period (big assumption I know!) then when I remortgage I would have increased equity. Is this correct as this could be easier for me than saving a larger deposit?

HappyMJ

CarlI wrote: »

Thanks for the quick, clear repsonse.

The way I understand this getting a property cheaper would obviously be a benefit in itself. Also if I could take out a relatively short term mortgage, would the property be revalued when remortgaging?

Assuming the property stayed the same price during this mortgage period (big assumption I know!) then when I remortgage I would have increased equity. Is this correct as this could be easier for me than saving a larger deposit?

The savings you make wouldn't be enough over such a short term. If you are borrowing close to your limit then think about a 5 year fixed rate mortgage then at the end of the 5 years remortgage onto another fixed rate or special offer but make sure the standard variable rate that the subsequent mortgage reverts to is as low as possible. You are looking for less than 4% SVR or a base rate tracker for life so you never have to remortgage again.

CarlI

Thanks again but can I just clarify one point, if I did take out a shorter term mortgage would the property be revalued in taking out a new mortgage?

HappyMJ

CarlI wrote: »

Thanks again but can I just clarify one point, if I did take out a shorter term mortgage would the property be revalued in taking out a new mortgage?

Yes but it is unlikely it would increase much so you taking a large gamble for little gain. The price will still be based on the price you paid plus any increase in property prices and over 2-3 years that won't be much. At least after 5 years you should at least be looking at a 10% increase in the property value.

kingstreet

CarlI wrote: »

Thanks again but can I just clarify one point, if I did take out a shorter term mortgage would the property be revalued in taking out a new mortgage?

You're talking about a shorter term product, not a shorter term mortgage.

A short-term mortgage would cause vastly higher monthly payments, although it would mean you'd pay less overall.

You can choose a product which runs for two years, three years, five years, your call. You'll be able to remortgage at the end of that period and the new lender would have a surveyor value the property at that time. Don't forget to factor-in any transfer costs.

The property value and the amount you want to borrow will then determine the loan to value and the rate which will apply. However, as HMJ says, you may see little increase in the property value and you'll repay little of the original capital in the shorter timescales. It is possible the property value may even fall.

I suggest you concentrate on a product with a good "follow-on" rate just in case you can't remortgage at the end of the initial product period.