Price reductions and mortgage money

HouseBuyer77

Let's say I have an offer accepted on a house of £200'000. The bank instructs a valulation survey which gives a value of £200'000 and the bank agrees a mortgage at an 80% LTV, so the bank will provide £160'000 of the purchase price and I provide a deposit of £40'000.

Following this a homebuyer survey is instructed by me. This survey finds some defects that require work and furthermore states I'm probably overpaying for the house and gives a valulation of £190'000. I take this survey to the vendor and negotiate a discount, final price is agreed at £190'000.

What happens to the money provided by the mortgage provider? Had the discount not been negotiated they would have paid £160'000 to the solictor, I would have paid £40'000 and the balance transferred to the vendor. As the price is now £190'000 there's a spare £10'000 left over. Would I receive this? The bank were happy to lend me £160'000 secured against an asset they consider to be worth £200'00 so in some sense their siutation hasn't changed so the extra money coming to me doesn't seem all that unreasonable.

On the other hand it may be £190'000 is seen as the actual value of the house by the bank and so they want to provide the mortgage on that basis. I provide slightly less deposit and my monthly payments are less. I end up with slightly more cash but certainly not an extra £10'000.

So what happens in the event of a price reduction?

(Above situation is more or less what I'm currently looking at, though numbers have been changed).

derbyshirenick

Everything will be adjusted. The sale price is on record and your solicitor will confirm this with the bank when requesting the funds.

The bonus is you save some deposit too! (if you stack it up that way)

eddddy

80% LTV means the bank will lend up to 80% of their valuation or the purchase price - whichever is the lower.

In your example, the purchase price is lower at £190k. So the bank will lend a max of £152k (and you have to pay the remaining £38k instead of the £40k you originally planned).

You'd have to go back to the bank to get your offer amended.

movilogo

You'd have to go back to the bank to get your offer amended.

This ^^^

Effectively it will like issuing a new mortgage offer again (so it will add 5-10 days to the process).

Once a mortgage offer has been issued, any amendment must be made on approval of lender.

HouseBuyer77

Suppose I negotiated the vendor down to £195'000 rather than £190'000.

Would it be possible for the bank to then decide it was only prepared to lend based upon the valuation of the homebuyer's report (despite the fact it's own vaulation survey gave £200'000 as a value)? So despite negotiating a discount I'd end up having to pay a bigger deposit to cover the shortfall to achieve the same LTV (though I would have a smaller mortgage).

I wouldn't voluntarilly tell the bank about the reduced valulation but as my solicitor is also acting for the lender it's possible they would enquire as to the valuation from the homebuyers survey (maybe I could refuse to tell them?) and feed this back to the bank.

BaxUk

As people have said, the bank will be made aware of the purchase price throughout the process, best to be upfront and save yourself the time and hassle at a later date!

HouseBuyer77

Well I wasn't planning on being sneaky, just wondering if the bank would suddenly decide they want to withdraw the current offer and instead offer based on £190k valuation even if the purchase price agreed was £195k and the bank's valulation had said £200k. I'd note that nothing in the property has changed between valulation survey and homebuyers (which was the source of the lower valulation).

I'll read the small print of the mortgage offer in detail to see if it says anything about it and specifically conditions under which it would be withdrawn.

eddddy

HouseBuyer77 wrote: »

...
Would it be possible for the bank to then decide it was only prepared to lend based upon the valuation of the homebuyer's report (despite the fact it's own vaulation survey gave £200'000 as a value)?
...

No - the bank has instructed their valuer, and they will rely on their valuer's valuation.

They wont be interested in what your surveyor valued it at, or what your brother-in-law valued it at, or what the bloke in the pub valued it at - if you see what I mean.

HouseBuyer77

Makes sense, thanks for the help everyone.