Will lender reduce loan amount in this case?

theclarkofben

I would like to know your opinion on whether or not my lender is going to reduce the amount they are willing to lend us. We are porting our existing mortgage, the lender has agreed to that already, but it is now up to the underwriter to carry out a valuation of the property. These are the circumstances:

• My best guess based on research of the valuation: £385,000
• The price we are willing to pay: £425,000
• The amount we intend to put down as a deposit: £85,000 (20%, i.e. mortgage requested is £340,000)
• Our combined annual salary: £115,000
• The amount we will have left in savings after all movings costs including stamp duty, solicitors, moving, etc: £16,000
• We have no other properties, no debts/credit, no major unusual costs

I think it is likely that the underwriter valuation will value the property £40,000 less than the price we have agreed. Please don't give me a hard time on that - I know it's a huge difference and we are totally happy with paying that, even in the knowledge we won't get it back again.

What I'm unsure of is what happens now if that situation occurs. Our combined salary is more than sufficient for the amount we are looking to borrow and we are willing to put down 20% as a deposit. Does this mean they are likely to be ok with the £40,000 difference? Because if they needed to take possession of this property from us they would certainly still be able to reclaim their money even if it sells for the same price as the valuation (£385,000). Right? or is there a hard rule in these situations where lenders always reduce the amount they are willing to lend regardless?

YHM

An underwriter doesn't complete a valuation, a surveyor does.

They will provide guidance to the lender (and to you) as to where the purchase price is appropriate for the security in hand. The amount you commit as a deposit is irrelevant to a surveyor and the fact you are buying at circa 10% over market value, expect some comments from the surveyor and the lender as to why you want to do that. If the surveyor goes out and agrees with the 425k, then there wont be any issues.

kingstreet

What did you put on the application as the purchase price, as the surveyor will normally just value at that, or lower, for mortgage purposes.

They don't provide an open-market valuation.

theclarkofben

YHM wrote: »

An underwriter doesn't complete a valuation, a surveyor does.

They will provide guidance to the lender (and to you) as to where the purchase price is appropriate for the security in hand. The amount you commit as a deposit is irrelevant to a surveyor and the fact you are buying at circa 10% over market value, expect some comments from the surveyor and the lender as to why you want to do that. If the surveyor goes out and agrees with the 425k, then there wont be any issues.

Thanks. Yes, I meant the surveyor, hired by the underwriter. What do you mean by comments from the surveyor and lender? If the surveyor goes out and does not agree with the 425k then do you think the underwriter or lender will still be ok with the amount I've requested based on the other criteria I have listed?

theclarkofben

kingstreet wrote: »

What did you put on the application as the purchase price, as the surveyor will normally just value at that, or lower, for mortgage purposes.

They don't provide an open-market valuation.

We put the purchase price as £425,000. What do you think will happen in my case if they do not agree with that value?

davidmcn

theclarkofben wrote: »

Because if they needed to take possession of this property from us they would certainly still be able to reclaim their money even if it sells for the same price as the valuation (£385,000).

Not "certainly", given that a repossession sale may well complete a year or so after a borrower starts defaulting on their repayments, so add the arrears, accrued interest and penalties, legal costs for repossession, costs for eviction/lock changing/house clearance/immediate repairs, insurance, marketing costs, conveyancing costs for the sale...

and then bear in mind that the price achieved is likely to be somewhat below a normal market price.

theclarkofben

davidmcn wrote: »

Not "certainly", given that a repossession sale may well complete a year or so after a borrower starts defaulting on their repayments, so add the arrears, accrued interest and penalties, legal costs for repossession, costs for eviction/lock changing/house clearance/immediate repairs, insurance, marketing costs, conveyancing costs for the sale...

and then bear in mind that the price achieved is likely to be somewhat below a normal market price.

Thanks. Very good points. But is that the kind of assessment they will make though? If the underwriter valuation does not agree with 425k will they still base what they willing to lend me on what they are likely able to recover if they have to take possession of the property? or do they always reduce the amount they are willing to lend regardless?

Carrot007

If the property is valued at 385K then you only have a 45K deposit which is just over 11%.


As long as you have applied for an appropriate mortgage and rate given your reduced deposit then noone is going to care you are giving someone 40K.


If you current product expects a 20% deposit then it will need to be changed.

YHM

Their assessment is nothing to do with what they will recover. Its to do with what is a reasonable and appropriate price for the security in hand.

If the surveyor goes out and values it at 385k, then the mortgage will be based on that, likewise if they value it at 425k.

theclarkofben

Carrot007 wrote: »

If the property is valued at 385K then you only have a 45K deposit which is just over 11%.


As long as you have applied for an appropriate mortgage and rate given your reduced deposit then noone is going to care you are giving someone 40K.


If you current product expects a 20% deposit then it will need to be changed.

Thanks. This is a really helpful answer. My mortgage product was based on a 10% deposit when I started it in 2016. So that means they should be open to me reducing my deposit in order to free up cash that I could use to pay any gap between what the loan amount I have requested and the adjusted amount they offer me after they conclude that the property has a lower value than £425k. Right? So with that thinking, I could reduce my deposit from 20% to 15% or 10% to free up cash to pay for any gap?

theclarkofben

YHM wrote: »

Their assessment is nothing to do with what they will recover. Its to do with what is a reasonable and appropriate price for the security in hand.

If the surveyor goes out and values it at 385k, then the mortgage will be based on that, likewise if they value it at 425k.

Thanks. If the mortgage is based on £385,000 and my mortgage product was based on a 10% deposit when I set it up. Then presumably the amount they are willing to lend will still be in-line with that mortgage product (i.e. based on a 10% deposit and they will offer me a loan of 90% of £385,000: £346,500). Which means I could just reduce my deposit to free up cash to pay for the £40k? Right?