New Build Undervalued

Phil_D5000

I have been accepted by 2 lenders for my mortgage. It will be to purchase a new build apartment for £370,000. This includes the car parking space at £20,000. The first lender had an Independent surveyor value the property at £325,000 & the second lender had an independent surveyor value the property at £330,000. I’m becoming very frustrated as the developers are not giving any reason why this has come back £50k less and my mortgage broker keeps saying should we try another lender? This is a help to buy mortgage and I have no idea what to do as nor mortgage broker or developer are giving me any idea of what to do. The developer has said to me both valuations have been done as desktop valuations?? Any advice would be appreciated. 

Missy79

The 2 valuations would suggest that the value of the apartment is only around £330K. Desktop valuations rely on information about other sales in the area, do you know what price similar properties, if any, have sold for? I would be surprised if an in-person valuation would increase the value by £50K unless there is something particularly special about the property.

The developers are obviously not going to give a reason why it is being valued at £50K less, they'd like you to pay the extra money, thus their encouragement to keep trying other lenders rather than reducing their price! Is the broker recommended by the developer?

Phil_D5000

As the area has no new builds or apartments I would say they are valuing this blind? There is a new train station built with access to central London in 22 mins being built underneath the apartment, don’t know if that’s not being taken into account? The developer advised me to use Santander to do my mortgage application with as they have accepted and their surveyors have signed off on the other property values. However, yes the broker was one of the suggested brokers by the developer. 

ooSTEVEoo

Run a mile!
Its clearly overvalued in the current market. I would not advise buying a new build leasehold property on HTB at any time, let alone now.
If you must go ahead ask for a big discount! New build apartments are notoriously overvalued, especially when HTB is involved. HTB is only helping the builders! 
Also do you fully understand leasehold? How long is the lease? What is the ground rent? What are the terms of the ground rent? Does the ground rent increase over time?? What other charges can the freeholder levy? Who will be the management company? Look for reviews on them. Be aware any quoted service charge will unlikely be realistic and will increase. Is the builder reputable? Has the building got a decent warranty? NHBC?
Sorry for being so gloomy but if property prices do fall then I can pretty much guarantee new leasehold flats bought on HTB will almost certainly be the first and hardest hit. Be very very careful. If you can look at small freehold houses. Or wait 6 months. 

D.L

Phil_D5000 said:

I have been accepted by 2 lenders for my mortgage. It will be to purchase a new build apartment for £370,000. This includes the car parking space at £20,000. The first lender had an Independent surveyor value the property at £325,000 & the second lender had an independent surveyor value the property at £330,000. I’m becoming very frustrated as the developers are not giving any reason why this has come back £50k less and my mortgage broker keeps saying should we try another lender? This is a help to buy mortgage and I have no idea what to do as nor mortgage broker or developer are giving me any idea of what to do. The developer has said to me both valuations have been done as desktop valuations?? Any advice would be appreciated. 

Two independent valuations have come in at £325k and £330k. The developer, who you might imagine could have an incentive to try and get as much money as possible out of you, apparently think it's worth more. It seems far more likely that the realistic value is around £330k and the amount you are desperately trying to hand over is far over valuation. Yes, if you go through enough independent surveyors you can probably get an outlier to agree with your/the developer's valuation but is that really what you want...?

Phil_D5000

ooSTEVEoo said:

Run a mile!
Its clearly overvalued in the current market. I would not advise buying a new build leasehold property on HTB at any time, let alone now.
If you must go ahead ask for a big discount! New build apartments are notoriously overvalued, especially when HTB is involved. HTB is only helping the builders! 
Also do you fully understand leasehold? How long is the lease? What is the ground rent? What are the terms of the ground rent? Does the ground rent increase over time?? What other charges can the freeholder levy? Who will be the management company? Look for reviews on them. Be aware any quoted service charge will unlikely be realistic and will increase. Is the builder reputable? Has the building got a decent warranty? NHBC?
Sorry for being so gloomy but if property prices do fall then I can pretty much guarantee new leasehold flats bought on HTB will almost certainly be the first and hardest hit. Be very very careful. If you can look at small freehold houses. Or wait 6 months. 

Hi Steve,
Thanks for the above. The leasehold on the property is 250 years. I have the charges, ground rent etc, all within budget and I have been advised these are locked in for 10 years? Don’t know if that is something that is common or not? The developer is one of the largest property builders in the U.K. and have said they are the management company post sale. I am hoping they will lower the property value, however I think this will be unlikely.

Phil_D5000

D.L said:

Phil_D5000 said:

I have been accepted by 2 lenders for my mortgage. It will be to purchase a new build apartment for £370,000. This includes the car parking space at £20,000. The first lender had an Independent surveyor value the property at £325,000 & the second lender had an independent surveyor value the property at £330,000. I’m becoming very frustrated as the developers are not giving any reason why this has come back £50k less and my mortgage broker keeps saying should we try another lender? This is a help to buy mortgage and I have no idea what to do as nor mortgage broker or developer are giving me any idea of what to do. The developer has said to me both valuations have been done as desktop valuations?? Any advice would be appreciated. 

Two independent valuations have come in at £325k and £330k. The developer, who you might imagine could have an incentive to try and get as much money as possible out of you, apparently think it's worth more. It seems far more likely that the realistic value is around £330k and the amount you are desperately trying to hand over is far over valuation. Yes, if you go through enough independent surveyors you can probably get an outlier to agree with your/the developer's valuation but is that really what you want...?

Agreed, I don’t want to pay more when there is no need to do so. I will be hitting the developer hard this week with all the above and seeing what they are going to do about this. They have already said to me that I’m one of only a few that hasn’t pulled from the sale as I’m lucky to have not been furloughed or have any threat of a job loss. Their response has come back saying their directors are looking into this and will come back to me! 

Scotbot

Phil_D5000 said:

D.L said:

Phil_D5000 said:

I have been accepted by 2 lenders for my mortgage. It will be to purchase a new build apartment for £370,000. This includes the car parking space at £20,000. The first lender had an Independent surveyor value the property at £325,000 & the second lender had an independent surveyor value the property at £330,000. I’m becoming very frustrated as the developers are not giving any reason why this has come back £50k less and my mortgage broker keeps saying should we try another lender? This is a help to buy mortgage and I have no idea what to do as nor mortgage broker or developer are giving me any idea of what to do. The developer has said to me both valuations have been done as desktop valuations?? Any advice would be appreciated. 

Two independent valuations have come in at £325k and £330k. The developer, who you might imagine could have an incentive to try and get as much money as possible out of you, apparently think it's worth more. It seems far more likely that the realistic value is around £330k and the amount you are desperately trying to hand over is far over valuation. Yes, if you go through enough independent surveyors you can probably get an outlier to agree with your/the developer's valuation but is that really what you want...?

Agreed, I don’t want to pay more when there is no need to do so. I will be hitting the developer hard this week with all the above and seeing what they are going to do about this. They have already said to me that I’m one of only a few that hasn’t pulled from the sale as I’m lucky to have not been furloughed or have any threat of a job loss. Their response has come back saying their directors are looking into this and will come back to me! 

Go back to them with a lower offer, they will never reduce the price unless you revise your offer. 

Owain_Moneysaver

Phil_D5000 said: I have the charges, ground rent etc, all within budget and I have been advised these are locked in for 10 years? 

And then what happens? If they double in year 11, and double again in year 21, on a 25-year mortgage your charges will have quadrupled. By the end of a second 25-year mortgage the charges would be 32 times what they are now. That affects you, because if you're trying to sell in year 25 all prospective buyers and their valuers will be considering what the charges will be in a further 25 years time and this will affect the value you can sell for, which affects the value for which you can get a mortgage now.

It's overpriced, and it is very much a buyer's market at the moment. The developer can drop the price - or offer extra incentives; the obvious one is to sell at £350k and throw in the car parking space for free. 

The developer is one of the largest property builders in the U.K. and have said they are the management company post sale.

Rubbing their hands with glee all the way to the bank, probably. 

Grumpy_chap

Has your solicitor advised you on the ground rent and service charges?  There are many horror stories of frightful things with new builds that become impossible in the future.  Locked in for 10 years is not that long.  The developer will not manage the estate once it is built and all sold they will be out of there - probably to the highest bidder.

ooSTEVEoo

Others have already warned you of the dangers of ground rent. The fact you say it’s locked in for ten years sounds a little naive to me. Get to the bottom of this! Google increasing ground rents. I’d hope your solicitor and bank would already have checked this.
As for the builder being the management company..... it’s a scam! A legal and common one but a scam nonetheless. If they’re as big as you say they won’t want to be managing your flats and changing communal lightbulbs in a small development. They will either have a separate arm managing this who are there purely to extra money from home owners or they’ll sell the right on to an unscrupulous management company who are even worse. How many flats are there? The smaller the block the worse this problem can be as there’s less properties to share the burden of keeping a management company profitable.
The ground rent.... After checking what really happens after 10 years next work out who actually owns the freehold. Who is the freeholder/landlord? At this stage I’d expect that also to be the builder. They will almost certainly sell this off to the highest bidder. I bought a new build flat in London once and within months of the last flat selling the freehold had been sold to a large company specialising in owning freeholds and robbing owners (freeholdmanagersplc). It’s a nightmare. You couldn’t even remortgage without paying them for permission. Also be aware that at this stage, with a new build, your lease is actually negotiable although the builder might not admit it. Once it’s signed off changing it is impossible without costly legal help. Demand that any term increasing the ground rent is removed from your lease. (Builder would hate this as it makes the freehold less valuable to them to sell).

Seriously... only proceed if you’re getting a very good price (like what it’s valued at least) and the ground rent doesn’t increase after ten years. HTB is legal nightmare potentially trapping you in a property at a loss. Add in to that the legal mess of leasehold and then an increasing ground rent and you can see why I say run a mile.
Im sorry but I’m old now and just wish someone had explained to me the pitfalls of buying a new build leasehold flat when I did 15 years ago. It was a stunning flat but the biggest mistake of my life. Be careful.