Bizarre valuation situation

ACG

CRIMPY wrote: »

Hi,

As it happens, I gave the mortgage broker the full story, the proposed schedule, etc., and at no point did he warn me not to allow the work to start. He gave me no documents to review or sign, simply asked some questions and handled the application, before asking for his fee and subsequently the bank asking for theirs.

He is the professional and it was his duty to know enough to warn me if anything was going to interfere with the process.

I suggested that I was going the send the entire thing to the FCA and the advisor has not only refunded his fee, but the valuation fee I had pay the bank. To his credit, at least this broker has had the decency to admit he did not provide service to a standard one ought to expect. From the sound of your response, you would have kept the money and blamed me - exactly the attitude that gives the industry a bad name.

Still, at least I got my money back. I hope your clients would be as fortunate in the same circumstances.

Our fees are ONLY chargeable on full offer of a Mortgage. My customers come to me for a Mortgage, so if they do not get their Mortgage, they do not need to pay. I am pretty big on doing the right thing, I quite like sleeping at night.

It appeared from your post that you had gone directly to the lender which is why I did think the error was your side. Your frustration was aimed at the lender in your post, but the Broker is the one to have taken responsibility.

Blackbeard_of_Perranporth

CRIMPY wrote: »

I can assure you we have professional architects.

Good. I hope your project goes well! We have too many mishaps here! You can of course stay around and let us know how you get on. This helps others in the future.

minimike2

Just to add my 2p....

A £500 val fee, I am assuming a basic valuation, would mean a pretty hefty property value. From that and the description of the work, one can assume you are not talking about a new £5k kitchen, but works much more substantial. You mention looking to borrow 1x your salary......

Just take care on your financing costs if you go down the unsecured borrowing route which you then later try to re-finance, as this opens up OTHER potential issues from some lenders. For example, if your total unsecured borrowing exceeds your annual income. This can trigger auto-declines from some lenders who will not budge even if you prove it was spent on the home improvements, so could limit options.

Your next move needs to be someone who understands the situation fully and is experienced.

CRIMPY

I do have a general question: This is clearly the policy of most lenders, but why? What's the logic behind them having this policy? I could understand it if the LTV was much higher (i.e. the risk of them being left with an unfinished building job, but in this case, with the LTV at 20%, what is the logic behind refusing to value it until the kitchen, bathroom and hot water are back on? Why does the arrival of those three things take the risk from "no loan under any circumstances", to a risk worthy of a 1.5% interest rate? From their point of view they've just lost a small but perfectly good bit of extremely low risk business - I can't see how it helps their business to have a policy that makes it impossible to lend in such an obvious low-risk situation. There must be some logic to their thinking, but what is it?

Thrugelmir

The property needs to be easily resaleable. Mortgage lending is a low margin business therefore priced as such. There's no need in effect to take any risk at all. Defaults are extremely costly to administer. The full costs of which aren't recovered from the debtor.

CRIMPY

I sort of get that, but they'd only have to sell it for around 20% of its value to recover the debt - surely that's "easy"?

But more to the point, had they turned up four days earlier to value the property, they'd have issued the mortgage, in full knowledge that we were about to rip out the bathroom, kitchen , etc. The only difference is that they turned up four days later, and suddenly that means they can't lend. The risk to them is absolutely identical in both cases. I know (unfortunately too late) that's "how it is" but in this cases it makes no sense from the lenders perspective. Under no circumstances could they be left with an asset that wasn't easy to sell for considerably more than any debt owed. The reality is that we're just dealing with a big machine, rather than intelligent decision makers. No human in their right mind would see a material difference in lending 4 days before the works starts vs four days after, for a 20% LTV mortgage.

ACG

Someone on here once described it as lenders view it from the top down, you are viewing it from the bottom up.

High street lenders apply criteria and credit scoring to filter out applications that pose too much risk. In your case it is a property being renovated, but it could just as easily be a property that has fallen in to disrepair and left empty for 10 years.

Thrugelmir

CRIMPY wrote: »

I sort of get that, but they'd only have to sell it for around 20% of its value to recover the debt - surely that's "easy"?

Policy is set at board level. As mortgages are granted in thousands per lender. Lenders aren't interested in staffing an operation, together with all the related overheads, to recover delinquent accounts. Not their business model. Far easier to focus on borrowers that are better lending risks.

CRIMPY

"Better" as in higher risk? ( And thus higher interest?). This must be one of the lowest possible risks they would see. It's 20% LTV, even before the work. We've no mortgage, practically no personal debt apart from minor sums on credit cards at any one time of the month and never had a day out of work in 20 years from graduation (with a computing PhD.) Should I lose my mind and suddenly turn into a spendaholic, they can just auction the house for twice the value of the debt and they sell in 20 seconds, for less than of half its (unfinished!) value.

As I say, it's just a preprogrammed machine that throws away perfectly low risk loans, presumably because programming the machine to be slightly smarter costs too much, or is beyond their wit.

I was genuinely intrigued to see if I've missed something, and that someone had an answer that said "actually the bank's risk is high in this case because..." (Including an explanation of why it was higher four days into the work than four days before the very same work (which they knew about). In both cases, there could, conceivably, as kitchen etc is stripped out, be a short period of time in which the LTV might peak at say 25% before dropping, post work, to about 15% or less. The cases are identical though. There is simply no difference between the two scenarios - it is purely a process failure on their part. They presumably make the calculation that it's too fiddly to process any case that doesn't fit an exact pattern, and simply don't care about the lost easy business.

On the few occasions in life you get to see the mortgage and advice machine in action you certainly get an interesting insight into the "Matrix" that's for sure. What a strange world we've built. Yikes, maybe those of us in software helped build it. We've completely deskilled lending and turned it into a sausage factory.

It's been an eye-opener.

CRIMPY

Thrugelmir wrote: »

Policy is set at board level. As mortgages are granted in thousands per lender. Lenders aren't interested in staffing an operation, together with all the related overheads, to recover delinquent accounts. Not their business model. Far easier to focus on borrowers that are better lending risks.

I can see how that is the case, but the risk of them having to recover a delinquent account here is surely only related to my ability to service the loan. Whether or not the kitchen is replaced next week or last week has no connection. I presume, having been offered ( subject to valuation) a short mortgage at 1.5% they never saw deliquency as a risk. The entire decision was based on the lack of kitchen and bathroom with work taking place.