Shared Ownership - If value of my home is £0 because of cladding, can I buy remaining share for £0?

AdyT

I've just been asked to check that my financial lender will offer a new mortgage on my flat before I proceed with a staircasing valuation. This is because I have been informed that, at present, the developer can't produce the necessary fire safety documents that most lenders now require. I have been advised, due to a bottleneck, this could take years. Yes, years. 

My question, therefore, is this: if we get a valuation but can't get a mortgage on the flat, does that render the flat's value at £0? In my lease, it states that we can purchase the remaining share of the flat at market value. And if the market value is £0, does that mean we could proceed and purchase our outstanding % of the flat for the market value? In essence, get the remaining % for zero while keeping my mortgage exactly the same.

Would really appreciate some advice here. 

NewShadow

Market value isn't the same as mortgageable value... 

Just because a lender won't give you a mortgage doesn't mean a cash buyer won't pay money for it therefore the property has a market value. 

Unless you want to sell your share to me for £0 - because that's all it's worth? 

eddddy

Your flat hasn't really got a market value of £0. When a mortgage valuer values a property at £0, it's just shorthand for "the property isn't suitable security for a mortgage".  But a cash buyer might pay you a chunk of money for it (much more than £0).

For your staircasing, you need to find out the valuation basis that your valuer will use.

For example, I wouldn't be surprised if they valued it as though the property had been maintained and repaired as required by the lease.  And if the lease essentially requires dangerous cladding to be replaced with safe cladding, then it will be valued as though the cladding has been replaced.

AdyT

Thanks for clearing that up. But would a cash buyer purchase a property that could be a fire hazard? If so, surely the uncertainty on the cladding diminishes the market value? For instance, If I was going to buy a car, and someone said there's a 50/50 chance it'd go up in smoke, I wouldn't pay the same price for it as I would a similar car that wouldn't go up in smoke. I'd pay considerably less. With that in mind, does that not make market value redundant? 

foxy-stoat

Naaaa, the market value wont be £0 - it will be the mortgageable value.  2 different things.

Nice try though, I seem to remember someone else coming on here asking the same question with a different user name.....wonder if that was you.

hazyjo

Not if they're going to rent it out. I mean, you're living in it, aren't you, despite the fire risk! As are other residents I presume.

Or they'll sit on it until the cladding is sorted - which it eventually will be. Might cost them a fair packet, but probably a massive amount less than the discount they would get after buying it.

AdrianC

AdyT said:

I've just been asked to check that my financial lender will offer a new mortgage on my flat before I proceed with a staircasing valuation. This is because I have been informed that, at present, the developer can't produce the necessary fire safety documents that most lenders now require. I have been advised, due to a bottleneck, this could take years. Yes, years. 

You and quite a lot of other people. You may have seen the odd mention of "Grenfell" in the news in the last couple of years...

My question, therefore, is this: if we get a valuation but can't get a mortgage on the flat, does that render the flat's value at £0?

Simple answer... No.

It means no lender want to lend against it. That does not mean its value is £0 to a cash buyer. Its value is lower than if it was mortgageable, sure. But not £0. And since you can't get a mortgage for the staircased portion, by how much it's reduced is academic.

foxy-stoat

AdyT said:

Thanks for clearing that up. But would a cash buyer purchase a property that could be a fire hazard? If so, surely the uncertainty on the cladding diminishes the market value? For instance, If I was going to buy a car, and someone said there's a 50/50 chance it'd go up in smoke, I wouldn't pay the same price for it as I would a similar car that wouldn't go up in smoke. I'd pay considerably less. With that in mind, does that not make market value redundant? 

That would be true yes, but ARE you selling your flat to a cash buyer and would you be able to take a lower offer for it?  I mean you would have to settle the current mortgage on it if you were...you are probably in thousands and thousands of negative equity at the moment, so I doubt you could sell it to a cash buyer.

eddddy

AdyT said:

Thanks for clearing that up. But would a cash buyer purchase a property that could be a fire hazard? If so, surely the uncertainty on the cladding diminishes the market value? For instance, If I was going to buy a car, and someone said there's a 50/50 chance it'd go up in smoke, I wouldn't pay the same price for it as I would a similar car that wouldn't go up in smoke. I'd pay considerably less. With that in mind, does that not make market value redundant? 

An investor might look at it like this (using made-up numbers) :   

• Once the cladding is replaced, the flat might be worth £150k
• I might have to contribute £10k towards the cost of replacing the cladding
• I might have to rent it out for a year or two, until the cladding is replaced
• So I'll offer £110k - and make myself a bit of a profit in a couple of years.

So the current market valuation is £110k.

But as I say, the valuer might value it as though the cladding has been replaced - making the market valuation £150k

davidmcn

AdyT said:

Thanks for clearing that up. But would a cash buyer purchase a property that could be a fire hazard? If so, surely the uncertainty on the cladding diminishes the market value? For instance, If I was going to buy a car, and someone said there's a 50/50 chance it'd go up in smoke, I wouldn't pay the same price for it as I would a similar car that wouldn't go up in smoke. I'd pay considerably less. With that in mind, does that not make market value redundant? 

Obviously there isn't a 50/50 chance of your flat going up in smoke though, is there?
Yes, the cladding obviously affects the value, but it doesn't make it worth zero. Such flats are being sold to cash buyers prepared to take on the risk.
Previous similar thread here:
https://forums.moneysavingexpert.com/discussion/6098188/taking-advantage-of-an-unmortgageable-shared-ownership/p1