What is the actual cost of under valuation??

alice_kate_2

Please can someone explain what happens if the house is undervalued by mortgage surveyor?

We have sold our house for asking price. The buyer has a 17% deposit. The bank valued the house at 6.5% under asking. It has been undervalued compared to comparable properties but they won’t budge.

How does this effect things? We can’t afford to swallow the cost of the difference? According to my maths (sorry if I’m totally wrong here!) the buyer can still get a mortgage required as their deposit covers the difference it will just be a worse LTV? 90% approx. instead of 83% approx.?

Am I totally off the mark here? The estate agent has said the buyer still thinks that the price is fair but can’t pay another the additional 6.5% to cover the undervaluing – but I can’t see how they have to pay a bigger deposit when they can reduce the LTV?

Any guidance much appreciated

Grenage

It's not your problem; so if you can't/won't drop your asking price, they can change their LTV or you'll find another buyer.

steeeb

It may change things with their mortgage and the rate might be different.

In any case, they either need to pay the different (in cash, or via the mortgage), you need to reduce - or some combination of the above.

If it falls through, buyer number 2 might go through the exact same thing.

A valuation can be appealed, so perhaps they can do this first.

The seller could use a different mortgage company that might do a different valuation which values it higher.

If not they need to find the difference, perhaps a token reduction of a couple thousand on your part might make things go along more smoothly if you're keen to sell.

dc197

If the sale price is unchanged (your own't drop) and the buyer's deposit is unchanged (they can't afford to scrape together more), then the valuation only affects the loan-to-value. This is because the buyer still needs to borrow the same amount, but this amount (loan) represents a larger fraction of the value (according to valuation report, not sale price) than before.

A larger loan-to-value often means a worse interest rate, if the change in LTV spans a round bracket such as the 90% bracket instead of the 80% bracket.
If their lender doesn't have a 90% bracket, and their LTV bracket is unchanged by the shift from 83% to 90%, it wont make any difference to them.

Finally, you say they're at 90% approx....well, if they're now at (say) 90.1% and you knock a few hundred off the ask and they find a few hundred from behind the sofa, then this could improve their LTV to (say) 89.9%, which may mean they don't change brackets and still have the same rate of interest.

HTH

eddddy

It could be a number of things, including:

1. They've been offered a good deal on a 85% LTV product. Changing to a 90% LTV product would get them a much worse deal.

2. Their chosen lender only offers products with up to 85% LTV. So they would need to change lender to get a 90% LTV, with another lot of application fees etc.

3. The buyer simply wants to reduce their offer due to the lower valuation. So the buyer and/or EA is giving you a 'sob story' about their mortgage to justify it.

Ithaca

It assumes your buyers can afford the additional monthly payments the 7% change in LTV would generate - there can be quite a jump between a >85% LTV rate and a 90% LTV rate depending on the lender (plus it will take time and possibly cost for them to find another deal).

Your buyers could either try to find another mortgage lender at 83% (and hope their valuation comes in a bit better) or they could appeal. Unfortunately while the buyer might think the price is fair, if they are getting a mortgage it's what their lender thinks is fair that counts more, and they will rely on the valuation survey. Your buyer could try to appeal but it's not a huge gap (5%-7%) so is within a reasonable margin of interpretation, especially if there is no recent nearby house purchase data to support a higher valuation (e.g. if the identical house next-door has recently sold for your asking price you'd have a better chance of appealing)

We were in a similar position as sellers last year. Our house was valued £4k less than the accepted asking price and our buyers were FTBs who had fully maxed out their deposit and were at 90% for their mortgage. Our case was different because 90%+ mortgages are much harder to find (and our buyers had already over-extended their deposit so couldn't get access to additional funds in the time we needed).

Options were:
1) Buyers find additional deposit funds (£4k was too much for them to find as they'd already had to scrape extra together to get into our price bracket)
2) Buyers appeal the valuation (margin was too small to be worth challenging)
3) Buyers get another mortgage and hope the valuation is more favourable (would have added delay, which meant we could have lost the house we were buying, and with no guarantee that the revised valuation would be better)
4) We drop the asking price to allow buyers to keep their 90% mortgage
5) We pull out and look for other buyers (again, risking losing the house we were buying).

In the end we chose (4) and agreed to drop the price by £4k (I think we asked for a token £500 extra on the purchase price from our buyers). We were selling for £235k and buying our "forever house" for £470k so we decided that £4k in the grand scheme of things wasn't a great deal in the context of the next 30+ years.

We did make it clear though that the cost of addressing any issues found during later surveys should be counted against the £4k reduction, so it ended up making the rest of the sale fairly smooth as the few areas highlighted in the homebuyers survey had already been effectively costed in.