Borrowing more than a house is 'worth'

SimplyRed1001

First time buyer in Scotland here.

Recently found a house with a Home Report value that was higher than the Principle in Agreement we'd had 3 months ago. I rang the mortgage provider direct (something I won't do again) to renew our Agreement and up the amount - a few good reasons I thought we could do this, affordability wasn't an issue and it isn't relevant to this anyway.
The seller was asking for Offers Over £168k and the Home Report value was £170k. I asked for an Agreement of £175k, the customer service person at the Mortgage provider asked an underwriter who said they 'can't loan us more than the house is worth'. They would only do an agreement for the £170k Report value.

Now I understand you can't take, for example, a £200k mortgage on a £150k house; even if you can afford it. If the house is repossessed the mortgage provider could potentially lose £50k. However, if I can only borrow the Home Report value and the vast majority of property goes for more than that (eg. last two properties we were interested in went for £6-8k over Home Report value), how can I ever make a successful offer?
Worried I'll end up in a position where I already have a Principle in Agreement which is higher than the Home Report value, make an offer which is also slightly above the Report value that is accepted and I will fail at the full application stage because I 'can't borrow more than the house is worth'.

Am I missing something please? Is there a threshold I don't know about or I am supposed to be making up the difference in cash? Please help!

[Deleted User]

The lender will make an offer based on the value of the house and risk criteria etc. If the value changes, the offer could change, but it will not be more than you are paying. It will be less, to account for the deposit you are putting in.

If the price you want to pay goes up and the lender won't lend more, then you make up the difference.

SimplyRed1001

Thanks for your reply, I think I understand what you are saying. To be clear £170k was 100% of the value, we were asking for a 90% mortgage so they were looking at loaning us £153k but wouldn't loan is 90% of £175k. I think there has been the same miscommunication on the phone as there has been here.

[Deleted User]

SimplyRed1001 wrote: »

Thanks for your reply, I think I understand what you are saying. To be clear £170k was 100% of the value, we were asking for a 90% deposit so they were looking at loaning us £153k but wouldn't loan is 90% of £175k. I think there has been the same miscommunication on the phone as there has been here.

I think you mean a 90% mortgage - you're putting in a 10% deposit.

They won't lend 90% of £175k because then they're going over 90% of value.

SimplyRed1001

Yes exactly; 90% mortgage - edited before you replied.

I think when speaking to the provider they may have thought I was asking to loan the full £175k from them, I've probably explained myself as poorly then as I have above and haven't made sense of the info given to me. I
n a nutshell; whatever % mortgage I'm asking for the amount that comes from the provider can't be more than the house value and if the total amount of the offer is over the value the difference should be made up by the deposit.
Thanks guys, I can stop worrying now I understand it.

[Deleted User]

SimplyRed1001 wrote: »

I think when speaking to the provider they may have thought I was asking to loan the full £175k from them,

Borrow.

SimplyRed1001

"I was asking to borrow the full £175k from them" - excited to finally have it cracked my grammar has gone to pot

warby68

A lender will always lend based on the LOWER of purchase price and valuation.

A mortgage product will be for a maximum LTV and 90% is a common threshold. You might need to apply for a different product, say a 95% LTV but these are rarer and will be more expensive. This would leave you a few k for paying above the valuation.

Have a look at your mortgage offer and the specific product you have.

You won't get 90% of 175k if the value is lower regardless of any misunderstanding at the moment.

SimplyRed1001

"You won't get 90% of 175k if the value is lower regardless of any misunderstanding at the moment."

So you're saying that any offer I make which is over the Home Report value I have to make up in cash? The provider will loan me a percentage of the Home Report value but not my offer if its higher than the Home Report value? Even if the amount they are loaning me is less than the Report value of the house?

davidmcn

SimplyRed1001 wrote: »

So you're saying that any offer I make which is over the Home Report value I have to make up in cash? The provider will loan me a percentage of the Home Report value but not my offer if its higher than the Home Report value? Even if the amount they are loaning me is less than the Report value of the house?

Yes. Lenders will always use the lower of the valuation and the price you've agreed. So if you're in a market where you need to offer more than the HR value, you'll need enough cash to make up the difference.

SimplyRed1001

This makes an immense difference, it means I'll be looking exclusively at 95% mortgages and houses of a lower value to free up the remaining cash to be able to make anything like a successful offer. I wish the mortgage adviser had explained this at our appointment, had our first offer been accepted we'd have pee'd alot of people off when it came to the crunch and couldn't follow through.
Thanks for explaining, its help me track down more resources to understand.