Huge AIP then tiny mortgage offer

pinkteapot

As the others have said, an AIP actually has two constraints, not just one. The bank says:

1) We'll lend you a maximum of £218k
2) At a maximum loan-to-value (LTV) of 90%

When you choose to buy a house at a certain price, you have to be within both of these limits.

Even if you decided to only buy something that costs £100k, the bank will not lend you more than 90% of its value. You'll always have to put down at least 10% as a deposit yourself. So, on £100k, they most they'll lend is £90k and you put down £10k.

The bank won't lend you more than 90% of the value of the property because they want to make sure that they can get back what they're owed if the property has to be sold (e.g. if you get behind with repayments). If they were to lend you the full amount that you're paying for it, there's a high risk that if it's sold again in the short term someone else will pay less for it, and they won't get the amount outstanding on the mortgage back.

So, the very most you could have spent was £242,222, with you putting down £24,222k as a deposit and the bank lending £218,000.

What size deposit did you tell your financial adviser you were going to put down?

kingstreet

agrinnall wrote: »

Yes, but the simple explanation is that it is a max LTV issue and the OP simply didn't understand what was being offered.

That doesn't really fit with being asked to increase deposit by £10k. It sounds more like affordability.

I suspect we're talking about a lender which has implemented some of its MMR policy already and something not previously taken into account is now being deducted, such as the issues I mentioned.

scottishblondie

agrinnall wrote: »

Yes, but the simple explanation is that it is a max LTV issue and the OP simply didn't understand what was being offered.

I don't think it is an LTV issue. Based on what the OP has said the situation seems to be:

Purchase price: £175k
Mortgage amount requested: £157k
Mortgage amount offered: £147k

A £157k mortgage on a £175k purchase would give them an LTV of just under 90%. As kingstreet has said, this sounds like the lender has changed their affordability rules since the previous AIP.

benjus

scottishblondie wrote: »

I don't think it is an LTV issue. Based on what the OP has said the situation seems to be:

Purchase price: £175k
Mortgage amount requested: £157k
Mortgage amount offered: £147k

A £157k mortgage on a £175k purchase would give them an LTV of just under 90%. As kingstreet has said, this sounds like the lender has changed their affordability rules since the previous AIP.

The bit I don't understand is the valuation survey - as others have said, if it hasn't been done, there can't be a mortgage offer.


Unless perhaps the OP is unaware that the valuation survey has been done, and the survey that hasn't been done is a homebuyer's report/structural survey that they intend to commission themselves. In which case, the low mortgage offer could be due to the valuation being less than £175k.

agrinnall

I looked at the figures in post #3 on the assumption that they were an update to what was given in post #1, but I can see now that the two posts have to be read together to try to work out what's been asked for an offered. So I agree with kingstreet and scottishblondie that there's something other than just LTV going on.

DBear85

Sorry I think I have been misunderstood by many.

We were always paying a 10% deposit, be that 10% for our 175k property, or 10% of our upper limit property's value. That's not the main issue at all.

I just wondered how AIP's can be so wildly different to final checks and whether my credit score will be hampered by further applications etc.

According to my Experian credit account, my account was last checked by the lender pre-AIP time, a few months ago.

Also, again to try and void confusion. Without mentioning lender names, our Financial Advisors did explain to us that this lender does things backwards with regards to surveys/valuations and mortgage applications. Don't ask me why, but I was reliably informed.

Waiting to hear from them so will let you know what is said.

I was just wondering what may have changed their estimation of us. We are in a good position in life really. So was hoping for some ideas or inspiration to figure it out so we can get something sorted

Anyway, thanks to everyone and big thanks to Kingstreet. You may have hit the nail on the head, childcare may not have come into the original AIP search?

Alphamare

There is only one lender who does it backwards. They have done you a favour as the property has been valued at less than you offered on it. You need to renegotiate not just stump up any extra money.

DBear85

And they begin with an S right??

Thanks Alpha, will look into it and see what gets said.

I will have my first house one of these days.

:beer:

kingstreet

Childcare can't be picked up on a credit search, so if the broker doesn't ask about it and the client doesn't mention it, it won't be deducted from affordability.

Therefore the agreement in principle will be for a higher amount than it should.

However, when the lender sees the payslips and there are childcare vouchers, or childcare payments on the bank statements the lender will then re-work affordability producing a lower maximum loan.

From the end of this month, brokers will be carrying out more thorough checks of such issues to ensure no mortgage application is submitted without first establishing it fully meets the lender's criteria.

Notable areas previously ignored by some lenders are;-

student loans
childcare
maintenance
ground rent/service charges
school fees.

These will no longer be ignored.

ging84

Have you asked them the reason?
A massive drop like that points at it being an ltv issue not an affordability issue, if it was an affordability issue they would most likely have given you the option of borrowing more over a longer term.
Is it a new build ?
often lenders will not lend as much on a new build