Lenders Valuation

akimi

We are in the process of selling our house and I'm managing to find new things to worry about...
The latest one being worried that our house may be down valued by our buyers lender.

Can anyone tell me if lenders require the valuation to meet the purchase price or the mortgage amount ?

Example -

Purchase Price = 200k
Deposit = 20k

If the valuation came back at say 190k would the lender be happy with or could this cause issues ?

I hope this makes sense

csgohan4

the buyer may ask for you to drop the price, you can decline or accept. It's a risk with any property, but as long as you have priced the property realistically, shouldn't be an issue

AdrianC

The lender want to see that you're paying a fair price - so the valuation meets the purchase price... Remember, they want to see what the risk is if they need to repossess and sell. If the loan is close to the value, then there's a high chance it'll be short after fees etc, especially if the place is in a bit of a state when they repossess, as they often are.

If the valuation is below the offer, they'll work the loan-to-value on the valuation instead. You're free to overpay, but don't expect them to do so... <grin>

So in your example:
£200k purchase
£180k mortgage
90% loan to value.
...but...
£190k valuation
£180k mortgage
~95% loan to value.

It may well still be borrowable, but at a higher rate, and they'll look a lot closer at your credit history.

davidmcn

The lender will treat the lower of their valuation and the purchase price as being the value. So in your example, assuming £20k is what the buyer is contributing in each case, the loan-to-value ratio will be 95%, whereas it would have been 90% if they had valued at £200k. So depends what the mortgage product requires. The lender won't mind if the buyer wants to make up the difference from their own funds.

Of course, if they value at less than your agreed price, that ought to give the buyer cause to consider whether the problem is actually that they've overvalued it rather than them undervaluing it - and whether the buyer can take the opportunity to renegotiate the price (which they may have to anyway if they can no longer afford the original price).

akimi

Ok,

So if say the buyer had a larger deposit and the down valuation didn't result in a change of LTV banding on his/her mortgage nothing much would really alter (so long as the buyer was happy paying over the valuation price) ?

davidmcn

akimi wrote: »

So if say the buyer had a larger deposit and the down valuation didn't result in a change of LTV banding on his/her mortgage nothing much would really alter (so long as the buyer was happy paying over the valuation price) ?

Yes, if the buyer has enough cash then the fact the lender thinks he's daft to pay too much is irrelevant.

akimi

Thanks for the replies. I'm sure I'll think up something else to worry about very soon

lookstraightahead

Do you think any buyer would want to pay more than what a property is valued at?

Crashy_Time

Most buyers now are looking for any excuse to drop the price, if they are even bothering to look for property to buy ATM, a "down-valuation" will be the perfect excuse IMO.

AdrianC

Crashy_Time wrote: »

Most buyers now are looking for any excuse to drop the price

Well, that's one of your more perceptively accurate insights.

"Most buyers want to pay less"

Get Alan Sugar on the phone, we've got the winner of the next series here.

babyblade41

I like to do my own price setting and as I always use a friend who's the agent and lives a long way away from where I do it always makes sense.

Quite easy to work out roughly what similar have sold for in the area in a year and even the high street as opposed dubious on line companies over inflate which is quite often where transactions stall along the way.

This year is particularly hard as I don't think it's totally on the price unless dropping quite a considerable amount .

Brexit isn't the cause it's the uncertainty that's causing everyone a mass headache at the min .

If I needed a lender I would always be guided by the valuation they set out as even if the vendor won't accept a reduction invariably someone else would come along and the same outcome would happen again

Never overpay unless you are sure it really is going to be very long term .

So many people think this is the one and a couple of years later circumstances change and they find themselves not being able to sell for the amount hoped for.

If a property is not meant to be then something else turns out better and you've had a lucky escape