Buying a house below market value

Million_Percent

Hi All,

Anyone ever bought a house below it's market value? I'm not sure how it affects LTV on the mortgage.

I'm looking at a house that has been on the market for a long time. I believe the seller will accept an offer considerably lower than the asking price. If that were to happen, when my mortgage application is processed and the house valued would the LTV figure of the mortgage be calculated against what I actually pay for the house or what the mortgage provider's valuer thinks it is worth.

Eg. If the house is on the market for 100K then it's fair to assume that this is a reasonable reflection of it's market value. Certainly other similar properties nearby back up this assumption. If I agreed to buy the house for 80K and provide a 10K deposit then I need a mortgage for 70K. Would the mortgage company calculate my LTV based on the 80K sale price or their valuer's assessment which we could assume to be in the region of 100K.

It would make a big difference to the interest rate offered.

Anyone had any experience of this type of situation? Thanks in adv.

Leon_W

Nope.


The mortgage is based upon the valuation or the purchase price whichever is lower.


If your only paying £80k you'll not get a mortgage based on a £100k valuation. It'll be a percentage of the £80k.

Million_Percent

Thanks Leon. I suspected that might be the case. They get you every which way don't they!

Brighty

Get a short deal this time, then when you remortgage in 2 years or whatever, the LTV will be based on valuation not purchase price.
Of course, that's assuming it's value is 100K, seller can ask for whatever they like, doesn't mean that's what it's worth. If it is worth 100k, why hasn't it sold?

Brighty

Million_Percent

Thanks Brighty. That's a good point about going for the shortest deal and remortgage sooner rather than later.

Fully appreciate that asking price doesn't necessarily equal market value but it doesn't feel overpriced relative to similar houses in the area. The house needs a lot of cosmetic improvement (decor and fittings throughout) which probably makes it rather unappealing at first glance but nothing structural is needed as far as I can see. I believe it has real potential.

kingstreet

FWIW if you buy from a relative, or as a sitting tenant, you may find you can use the price reduction as part/all of your deposit.

"Vendor gifted deposit" business where there's no connection ended in July 2012, when Halifax was the last lender to cease the practice.

Smi1er

If a house is on the market for £100K, and you manage to buy it for £80K then £80K is it's market value

Annisele

Million_Percent wrote: »

Eg. If the house is on the market for 100K then it's fair to assume that this is a reasonable reflection of it's market value. Certainly other similar properties nearby back up this assumption.

Are you comparing the £100k to the asking price of other similar properties, or to the actual prices they were sold at?

If you imagine ten identical houses, with five sellers putting them on the market at £100k and the other five at £80k, then the £80k houses will obviously sell first. That'll leave five houses sat on the market at £100k - but they're almost certainly not worth £100k.

Million_Percent

Thanks for the input Smi1er and Annisele.

I agree that the market value is whatever it actually sells for. For the purposes of this discussion, I am referring to a situation where the sale price is significantly less than the mortgage providers own valuation - perhaps the 'assessed value' rather than actual market value.

Either way, Leon has confirmed that the mortgage providers already have that eventuality covered off in their favour.

Million_Percent

kingstreet wrote: »

FWIW if you buy from a relative, or as a sitting tenant, you may find you can use the price reduction as part/all of your deposit.

"Vendor gifted deposit" business where there's no connection ended in July 2012, when Halifax was the last lender to cease the practice.

That doesn't apply in this particular situation but useful to know. Thanks.

kingstreet

It was posted for future readers of the thread, searching for this subject.