How does mortgage valuation work?

littleheadspin

Wife and I are going through the process of getting a mortgage and the Valuation is on Monday.

I wanted to ask for clarification as I'm a first time buyer. I'm buying a house that needs work for £100,000 with a LTV of 45%.

If the valuer goes in and says it's only worth £95,000 how does that affect me?

I presumed that they do the valuation to ensure the bank get's it's money back should a default occur, but what happens when a deposit is more than the loan.. ?

Eviesmummy

Our valuer looked around the house we are buying and asked what the agreed purchase price was. 2 hours later we had a call from our MA confirming the valuation, and that the mortgage offer had been made.

I hope yours goes through just as smoothly.

StuC75

assuming that assumed Loan To Value % from the valuation is within the range for the mortgage product taken then 'very little' may happen...

Say your borrowing 45k on 100k purchase (45% ltv in your view), and they value it at 95k that implies the ltv is 45/95 = 47% ltv..

If the mortgage rate you are getting requires a 45% ltv then they will look for you to pay extra on the deposit as they would lend 42.75k on 95k on that mortgage product... but if the mortgage product is for a 50% ltv then its likely to just sit with the underwriter to 'consider'...

littleheadspin

StuC75 wrote: »

assuming that assumed Loan To Value % from the valuation is within the range for the mortgage product taken then 'very little' may happen...

Say your borrowing 45k on 100k purchase (45% ltv in your view), and they value it at 95k that implies the ltv is 45/95 = 47% ltv..

If the mortgage rate you are getting requires a 45% ltv then they will look for you to pay extra on the deposit as they would lend 42.75k on 95k on that mortgage product... but if the mortgage product is for a 50% ltv then its likely to just sit with the underwriter to 'consider'...

Just checked the product on the banks website, it says LTV Max is 60%, Min 0%. So I should hopefully be safe.

Thanks for explaining it to me.

StuC75

Hopefully so, given the larger deposit it ought to be easier for the underwriter to agree on..

If it is needing complete renovation then the possible stumbling block could be if the property is unmortgageable - ie. you were buying a shell of a house to rebuild - they tend to look for Kitchen facilities to be there for some reason?, or sometimes there could be 'retentions' upon work been undertaken - though not sure how that works for the majority of home owners...

littleheadspin wrote: »

Just checked the product on the banks website, it says LTV Max is 60%, Min 0%. So I should hopefully be safe.

Thanks for explaining it to me.

amnblog

If affects you because you are paying too much.

Idiophreak

amnblog wrote: »

If affects you because you are paying too much.

...in one guy's opinion.

Last place we bought, valuer downvalued by almost 20%. So we bought at the lower figure. Builder sold all the other properties on the development for cash at full asking price.

pjread

I'd at least try to haggle down off the back of a low valuation, nothing ventured....

BillJones

amnblog wrote: »

If affects you because you are paying too much.

That makes no sense at all. I waited ten years for the flat I'm now in to come to market, and could afford to, and was happy to, pay seven figures for it. It is worth that much, to me, and so by definition I did not pay too much. I paid the minimum that would secure it.

The mortgage company disagreed with my price, and valued it over £100k lower. Their opinion means pretty much nothing to me, other than meaning that I dropped the mortgage and spent more of my own money.

StuC75

so by that if they value it over then is the OP paying too little..

Oh wait the valuer isn't buying the property only checking it forms suitable security that the lender could recover if repossessed and fits within the LTV banding for the Mortgage product.

Yes if the valuation pushed it to a higher banding deal which would cost more,, then yes the OP would be paying too much..

But its not the vendors issue (or need to accept the lower offering) that the buyer is dependent upon securing the mortgage in order to buy the house (they may get a cash buyer who wouldn't have that issue)..

And much like BillJones - the value is what the buyer is prepared and able to pay..

amnblog wrote: »

If affects you because you are paying too much.