Downvaluation but large deposit - Help please

fryderykchopin

I am a FTB and not sure I understand completely the problem of downvaluation when applying for a mortgage and I was hoping that someone could provide some light on this.

Let's assume an offer of 170k agreed, deposit of 80k + mortgage application of 90k. The house is valued at let's say 150k which is 20k less than the agreed sale price, however this valuation is still greater that the requested 90k mortgage. Would this be a problem for the lender as well? I assume this should not be a problem since the lender could easy recover the 90k by selling the house (valued at 150k), but I am not sure if this reasoning is correct or if I am missing something.

I appreciate this may be a silly question but I am a FTB and this is an entirely new world to me. Any clarification would be much appreciated.

Whats_your_forte

Not a problem. Just means on your example, you're sitting 60% LTV rather than 52%. In some cases, the LTV change might affect the product only but as this example is under 60%, there should be no real material changes

fryderykchopin

Whats_your_forte said:

Not a problem. Just means on your example, you're sitting 60% LTV rather than 52%. In some cases, the LTV change might affect the product only but as this example is under 60%, there should be no real material changes

Thank you for your clarification.
What I do not understand (maybe I should have asked a different question) is why the lender does not adjust the mortgage they would offer. For example, if I have 80k deposit and the house is valued at only 150k, then I only need 70k, which would make my LTV even lower (46%). I do not understand why lenders recalculate the LTV assuming the same mortgage (90k), instead of adjusting the maximum amount of money they would offer (70k).

Whats_your_forte

Are you buying it at £150k or £170k? Personally would say you are overthinking this. 
It makes no difference to your rate or deal based on the scenario described. And you don't have 46% LTV if you are still buying at £170k as you need £20k of your savings to bridge the downvaluation gap. 

gj373

Are you sure you are doing the right thing buying at £20k over the valuation price?

fryderykchopin

Whats_your_forte said:

Are you buying it at £150k or £170k? Personally would say you are overthinking this. 
It makes no difference to your rate or deal based on the scenario described. And you don't have 46% LTV if you are still buying at £170k as you need £20k of your savings to bridge the downvaluation gap. 

Sorry I was confused, you are right about the LTV.