Bidding over asking price - risk bank won't value it as high as we pay?

GeorgeRob

Hi all,

Just need a quick bit of advice. We're first time buyers, and we've just made an offer on a house that was put up for £185k. Compared to others in the area for the same price we've seen, its much nicer and a bit bigger. So we put in an offer of £186k, which we've then raised to £199k, with a 5% deposit of around £10k.

However, we've heard conflicting reports about the risks of offering over the asking price.. From what I've read online I'm pretty sure Option 2 is the correct one, but please could someone confirm for me?:

Opinion 1: Some people are saying if you bid too far over the asking price, the bank might not value the house at the price we've offered, and we would then have to come up with the difference between the two figures in cash, or lose the deposit if we can't.

Opinion 2: Other people are saying you don't put the deposit down until the house has been surveyed/valued by the bank and your own survey. So if the survey(s) find faults with the house, or just values the house lower (e.g. at £190k instead of £199k) you can either make a reduced offer, or pull out and just lose the cost of the survey. But keep your deposit as you haven't put it down yet.

Could anyone confirm which is correct please?!

Thanks

Cakeguts

Where is the house? Scotland? Northern Ireland? England or Wales?

andrewjb3

Is this England? In which case your deposit is only payable at exchange of contracts - which if after you've done surveys, got a mortgage approved etc. etc. Until then you're "only" risking the cost of valuations, surveys, mortgage application fees. And they'll be some legal costs like searches that'll need to be done - usually after mortgage approval but before exchange.

streetlovin

I don't understand why anyone would pay above the asking price. Surely if the house is worth £199k the seller would try to sell it for that price. Not sure why anyone would pay the money when the house is not worth that much.. So yes, there's every chance that Opinion 1 will happen. It can happen to anyone. It might not even be valued at the original asking price. If it is bigger and 'nicer' than other properties in the area but sold for the same price, I always assume something must be wrong with it.

I bought my house slightly differently and my deposit was put down after valuation took place, so I recommend you do the same. Hopefully more people will give you helpful response since I am not the most experienced in terms of house buying.

PS* Just realised this could be in Scotland... apologies.

Good luck!

GeorgeRob

Cakeguts wrote: »

Where is the house? Scotland? Northern Ireland? England or Wales?

This is in England. Manchester to be precise. Thanks!

mrginge

Well presumably the other parties you were bidding against felt it was worth considerably more than £185k so I guess the bank will do too!

GeorgeRob

andrewjb3 wrote: »

Is this England? In which case your deposit is only payable at exchange of contracts - which if after you've done surveys, got a mortgage approved etc. etc. Until then you're "only" risking the cost of valuations, surveys, mortgage application fees. And they'll be some legal costs like searches that'll need to be done - usually after mortgage approval but before exchange.

Thank you so much, I thought so!

AdrianC

Let's say your lender's valuation says it's worth £185k.
You're paying £200k.

You say you only have £10k to put down?

So you're looking for a £190k mortgage.
On your purchase price, that's 95% LTV.

But the lender don't care about how much you're paying. That, frankly, is not their problem. What they DO care about is what they can get back if they have to repossess. And if their man on the ground says the property's worth £185k, that means they're lending 103% of what they assess to be the value.

Not. A. Hope.

If their survey comes back with £185k, then the most you're going to be able to borrow is 95% of that, which is £175k. You will be paying the higher rates that go with a 95% mortgage - because the bank lender think it's that level of risk - and you will need to find the other £15k yourself.

Cakeguts

So let me get this straight. You have offered £199k for a house marketed at 185k in Manchester? I know prices in Greater Manchester have been rising but I don't think they have gone up that much since the house was marketed unless it has been on the market for about 5 years.

You need to go and look at this house again. If this house is bigger and nicer and cheaper than others surrounding it then there is something that is making it cheaper. What to look for. Road humps means a lot of traffic, pub next door or pub carpark over the back fence, mainline railway line over the back fence, no off street parking and double yellow lines outside, needs a new roof, planning permission for new block of flats next door or new housing development over back fence, backs onto a motorway, close to fire station/ ambulance station, risk of flooding. There is going to be something that you didn't notice or know about.

No one sells a house for less than they can get for it. So if a house appears to be cheaper than you would think there is either something wrong with the house or something about the location that puts people off buying it. The fewer the people who want to buy the lower the marketing price. So before you worry too much about the mortgage find out what it is that is making this house appear cheap for what it is.

GeorgeRob

streetlovin wrote: »

I don't understand why anyone would pay above the asking price. Surely if the house is worth £199k the seller would try to sell it for that price. Not sure why anyone would pay the money when the house is not worth that much.. So yes, there's every chance that Opinion 1 will happen. It can happen to anyone. It might not even be valued at the original asking price. If it is bigger and 'nicer' than other properties in the area but sold for the same price, I always assume something must be wrong with it.

I bought my house slightly differently and my deposit was put down after valuation took place, so I recommend you do the same. Hopefully more people will give you helpful response since I am not the most experienced in terms of house buying.

PS* Just realised this could be in Scotland... apologies.

Good luck!

Haha no its England. But the market in Manchester is crazy. Anything decent goes for over the asking price usually. I think its because MCR is growing so much - Media City is doubling in size over the next 5 years and there's stuff going up all over the city. Apparently MCR and Bristol are the only cities not showing any signs of slowdown (aside from London obvs).

Thanks for the help.

GeorgeRob

AdrianC wrote: »

Let's say your lender's valuation says it's worth £185k.
You're paying £200k.

You say you only have £10k to put down?

So you're looking for a £190k mortgage.
On your purchase price, that's 95% LTV.

But the lender don't care about how much you're paying. That, frankly, is not their problem. What they DO care about is what they can get back if they have to repossess. And if their man on the ground says the property's worth £185k, that means they're lending 103% of what they assess to be the value.

Not. A. Hope.

If their survey comes back with £185k, then the most you're going to be able to borrow is 95% of that, which is £175k. You will be paying the higher rates that go with a 95% mortgage - because the bank lender think it's that level of risk - and you will need to find the other £15k yourself.

Yes, thanks but this wasn't my question.. My point was, if they do value it lower than the price we offer, are we in danger of losing our deposit at that point, or can we just pull out and lose the survey fee. And I think it seems that there is no danger of losing the deposit from what people are saying.