Mortgages for properties in Scottish cities

MrPez

Kind of a question, kind of a rant...
I'm looking to buy a property in Glasgow. I'm slowly getting to grips with the Scottish system and while there are some very good aspects (compared to the English system) there are also some very bad aspects. I like the fact that you can't get gazumped and that the survey (for what its worth) is only done once. However, the pricing system is completely ridiculous! The property is valued as part of the survey and then is generally marketed at 10% lower (supposedly to gain interest). I can live with that, but where there is demand (i.e. in most cities) in order to actually get the property you have to offer way over the valuation price. It seems to be very area-dependent but in popular areas the selling price could easily be 25% over valuation.  If this is a general trend, surely that implies that properties are systematically being undervalued? What kind of system can market a flat at 189k only for it to sell at 250k?? Makes no sense!
The bigger problem is that mortgage companies will only lend on the valuation which means anything you offer over valuation (because otherwise you won't get it) you have to find yourself! Now most people don't have a spare 60-odd grand lying around and so you end up having to borrow at a higher LTV and therefore pay a higher interest rate. Just doesn't see right to me.
This seems to be limited to cities where demand is high, but there are a lot of properties in cities!
So two questions:
1. Are there any mortgage companies that actually lend on the purchase price?
2. What logic is there to systematically undervalue properties in cities?

[Deleted User]

MrPez said:

Kind of a question, kind of a rant...
I'm looking to buy a property in Glasgow. I'm slowly getting to grips with the Scottish system and while there are some very good aspects (compared to the English system) there are also some very bad aspects. I like the fact that you can't get gazumped and that the survey (for what its worth) is only done once. However, the pricing system is completely ridiculous! The property is valued as part of the survey and then is generally marketed at 10% lower (supposedly to gain interest). I can live with that, but where there is demand (i.e. in most cities) in order to actually get the property you have to offer way over the valuation price. It seems to be very area-dependent but in popular areas the selling price could easily be 25% over valuation.  If this is a general trend, surely that implies that properties are systematically being undervalued? What kind of system can market a flat at 189k only for it to sell at 250k?? Makes no sense!
The bigger problem is that mortgage companies will only lend on the valuation which means anything you offer over valuation (because otherwise you won't get it) you have to find yourself! Now most people don't have a spare 60-odd grand lying around and so you end up having to borrow at a higher LTV and therefore pay a higher interest rate. Just doesn't see right to me.
This seems to be limited to cities where demand is high, but there are a lot of properties in cities!
So two questions:
1. Are there any mortgage companies that actually lend on the purchase price?
2. What logic is there to systematically undervalue properties in cities?

This is no different than in the rUK especially in popular areas. The valuation from the lender will come in but to secure the property you've had to offer more so you need to stump up the extra between valuation and purchase price on top of your deposit so it's not unique to Scotland. 

The home reports aren't undervaluing the properties. The valuations are based on the market at the time they were drafted. If you're trying to buy in a hot spot then the sold prices will keep increasing which will have a knock on effect with the home report survey valuations. I say this as someone who has bought properties in two Scottish cities. 

comeandgo

The first time buyer has a problem.  If you are selling then you hope your property has demand and a good price can be got and the extra will be used to cushion the price between valued at and bought at.  I'm sure this happens in London too and anywhere there is demand.  Buy a new property, they are usually valued at selling price.

davidmcn

As above, there is nothing Scottish-specific about this, you'd have similar problems if buying in popular hotspots anywhere else in the UK. If you want an easier time, buy in neighbourhoods (or a type of property) where you're not likely to go to a closing date.

Hope you've already got yourself a decent solicitor to guide you through this (another advantage of Scotland, unlike other places where you don't get your solicitor's advice until it's too late...).

MrPez

That's interesting, I've not heard of it outside Scotland (although I've not bought in cities before so not a surprise!).
I'm sorry, but I still don't understand. A valuation should reflect the demand on the property. If the valuation isn't an expectation of what someone will be willing to pay, then what is it?
Also, Loveroflycra, I understand that a valuation is valid at the time it was made, but these properties are selling in a week and you can't tell me that prices go up by 25% in a week!
And yes, David, I have a solicitor. Totally agree, a definite advantage over the English system!

davidmcn

Valuations are based on evidence from completed sales, they can't reliably use what people are offering for properties this week because those transactions might never end up completing (either because buyers get cold feet or they don't get funding from lenders). As you've found out, you will need spare cash to buy in that sort of market, it's just the way it is.

MrPez

davidmcn said:

Valuations are based on evidence from completed sales, they can't reliably use what people are offering for properties this week because those transactions might never end up completing (either because buyers get cold feet or they don't get funding from lenders). As you've found out, you will need spare cash to buy in that sort of market, it's just the way it is.

That makes complete sense to base valuations on completed sales, but it doesn't seem that that is actually the case. If it were, the defference between valuation and purchase would simply be a few months worth of inflation which definitely is not.
I understand that this is the way it is. My point is it shouldn't be!

[Deleted User]

Get Mystic Meg to produce the home reports then. 

MovingForwards

Well, the options are having cash for your deposit and cash for the amount over the valuation.

Or, don't buy in a city and commute instead.

I had a bit of fun one evening, looking at 'like for like' properties around Edinburgh, compared to those within the commuter belt.

Over £100k difference (2 bed tenement flat).

Then I worked out how long it would take before the £100k was spent in commute costs; I would be long retired and possibly dead by then. 

For the sake of 24 minutes on the train, it was a no brainer for me.

Nebulous2

As @MovingForwards said:- Many people can't or wont be prepared to afford living in cities and have to commute. Just as many people can't afford to live in London. I have about 7 minutes by bike to get to work, and would never choose to drive into a City if I could avoid it, so I value being in town.

What you're seeing only happens in overheated markets and is often fuelled by the bank of Mum and Dad. Edinburgh has been a hotspot for many years, Glasgow is more recent. Predictions are of a continued drift from rural areas to cities, so strong prices may be around for a long time yet.

fewcloudy

Edinburgh here, and I've heard the arguments for and against living in the city countless times. I can only say that I am very glad I bought my first flat in the city centre to start with, and wouldn't change what I have now for the world. Others have a different view.  Working out how many years of commuting/train journeys might equal the extra cost isn't my style.
I know I paid a premium for what I have, and am very content with that. I didn't buy for the best value investment; I bought a house, a lifestyle that I desired and I'm very happy with it.

I would however say to MrPez that the although the situation he describes re. valuations etc was ever thus (in areas of high demand and when the economy supports a 'sellers market'), it was surely not as difficult for a FTB or newcomer to Edinburgh to buy a 1 bedroom tenement flat back in the day. We were able to do exactly that in a desirable popular city centre area for 2.5 x joint income with a 5% deposit. Both of us were low paid.
This became hugely important later when, as home owners, we lived through many years of house price rises of 15-20%...per year!  Quite soon (maybe by 2nd or 3rd house move) our salaries could never have supported our purchase, it was all about the equity.  You stay somewhere for 5/6 years, sell for dbl the price paid, soon makes for a v large deposit.