Down valuation and mortgage lender tolerance

Sfh014

Hi everyone, hopefully someone can shed some light on down valuations for me... Here's the scenario (it hasnt played out yet, but I'm keen to prepare for it in case it does):

I've offered on a leasehold flat in greater london, offer was accepted at £325k and mortgage valuation is due to take place next week.
I heard that the previous sale attempt fell through where the buyer's mortgage valuation came back in at £315k (was only told about this after my offer had been accepted). The previous buyer had a 5% deposit and the estate agent alluded to that potentially having an impact on how much risk the mortgage company was willing to take... Which leads me to the actual question I have...

What I wasn't sure about was whether the lender's valuation has to be exactly the same, if not more, than the sale price - is there not some tolerance that is applied, or is it really cut and dry?

It's an entirely separate question that I'll have to consider regarding whether it's right to inflate property prices should the vendor not be willing to negotiate, or whether I'd even be able to stump up the difference! Of course, all of this is a little hypothetical at this stage - this surveyor may come back with a more aligned valuation...

Many thanks in advance!

Carrot007

The seller has already refused a 10K drop.


The valuation is not likely to change.


You need M + D + X.


M is the mortgge, D is the Deposit.


M + D = 315K.


You then need X being 10K Extra cash in order to purchase the house.


It could well be that they will not sell for a penny less.


You shoul;d be asking them if the valuation comes in the same again will they budge. it will save wasting money.

davidmcn

Sfh014 wrote: »

What I wasn't sure about was whether the lender's valuation has to be exactly the same, if not more, than the sale price

You can pay what you like for the property - but the lender will invariably use the lower of the agreed sale price and their valuation as the "value" for the purpose of their loan-to-value ratios.

If the previous buyers could only afford 5% of £325k, and the lenders only go up to 95% of £315k, then it's not going to add up. Other buyers will be able to stretch a bit. The difference in value is after all only £320k +/- 1.6%.

ACG

The property would usually be valued at the purchase price or lower, rarely more.

If your valuation comes back lower you have 3 options:
Negotiate,
Find the difference,
Pull out.

If your valuation and a previous one comes back lower, I would be inclined to go with the surveyor. I have had a property valued £10k higher/lower by 2 surveyors a week or so apart.

The vendor would need to be stupid or desperate for the extra £10k if they were to risk losing a second buyer.

Sfh014

That all makes a lot of sense, thank you.
In terms of asking the seller what would happen should this valuation reflect the view of the 1st from the previous buyer, that seems to have been discussed between the EA and the seller already - the EA said today that if that were to be the case, they've said that the buyer should accept the asking price is too high and should sell lower. Whether the seller does that is another thing. I would go back and ask for a more explicit response, but given that money has already been spent (and no further expenses will be incurred prior to the valuation coming back) I'm in a wait and see situation.

Agree @davidmcn - it would be greater stretch for the other buyer (I also understand they had offered at 330k, which would further emphasise the gap they would have to bridge up-front.

ACG, I'm with you on your inclination too - I'd find that if two surveyors were valuing the property below offer value, that would be far too compelling a scenario to ignore.

As a side note, and you may have alluded to this already, but do the mortgage company weigh up the valuation against other factors? I.e. if a valuation came back at £1000 less, would they act on that and state they would only lend against that 'down-valued' figure, or is it a bit more qualitative than that?

Thanks again everyone

davidmcn

Sfh014 wrote: »

I.e. if a valuation came back at £1000 less, would they act on that and state they would only lend against that 'down-valued' figure, or is it a bit more qualitative than that?

Surveyors will always have a bit of leeway, but if it's "downvalued" it's because they've reached the upper limit of what they're prepared to value it at. Don't think I've ever seen one only £1k adrift. I wouldn't expect the lenders to then add in any fuzziness of their own to what the valuer has said.

FTBAngst

A surveyor downvalued a house I looked at by 30+k (needed a lot of work). The valuation agreed with asking. I asked the surveyor why there was such a mismatch and he said if your deposit is high enough they don’t care

Sfh014

Do you mean you had 2 valuations - one independent homebuyers or equivalent, and one for the purpose of a mortgage valuation? Interesting point around their take on deposit amount - was that the surveyor or lender saying that it didn't matter if big enough deposit?

FTBAngst

Sfh014 wrote: »

Do you mean you had 2 valuations - one independent homebuyers or equivalent, and one for the purpose of a mortgage valuation? Interesting point around their take on deposit amount - was that the surveyor or lender saying that it didn't matter if big enough deposit?

I got a full survey after the valuation. The survey found significant structural movement with a long string of other problems. I asked the surveyor why the bank valuation matched the accepted offer price if the house carries so many risks and the surveyor said ‘I bet your LTV is around x%’ and was very close (5% our). He then went on to say banks only care about protecting their investment, it comes down to one question- if you default on your payments will they at least get their money back?

Crashy_Time

Why do you want a house with "significant structural movement with a long string of other problems" may I ask?