Does mortgage down valuation matter?

chozza

Hi,
I'm in the process of buying a property, and the lender HSBC has given a valuation significantly lower than the agreed sale price.  I have 50% LTV so I don't believe this is the issue. I also know that they haven't visited the property so would have been a desktop valuation.
It was on the market for 325k, sale agreed at 265k, and HSBC have valued it at 210k! The broker agreed that they've clearly made a mistake, as even a quick search on sales in the area show an absolute minimum of 240k for similar properties. Just to provide some perspective, I sold my house very close by for 220k, and it was 50% smaller and significantly less desirable for various reasons (no off road parking, tiny garden etc.)
I am almost certain the price i've agreed is a very good price (having done quite a lot of research), and the broker have said I can appeal the valuation, however there is no guarantee they'll re-value it, and by all accounts it's quite rare they do.
So my question is, does the mortgage valuation really matter for me when I come to resell it and should I be bothered?
Many thanks!

jennyred

I think the issue is not the resale but the mortgage offer.

if you agreed to buy at 265k and have a 50% LTV it means you are borrowing 133k ish.

if HSBC value it at 210k but the vendor still wants 265K then you put in your full 133k deposit, HSBC will only give you 77k mortgage and you will have to find the 55k yourself.

if HSBC value it at 210k and you only use 105K of your deposit to keep your 50% LTV then you still have to find the extra 55k yourself.

That is my understanding

But the vendor may meet you half way as if your mortagage company valvued it as 210k then so might many others.

letsbetfair

It's common in this kind of situation to see if the seller can reduce the price at all, alongside appealing the valuation...

theoretica

jennyred said:

I think the issue is not the resale but the mortgage offer.

if you agreed to buy at 265k and have a 50% LTV it means you are borrowing 133k ish.

if HSBC value it at 210k but the vendor still wants 265K then you put in your full 133k deposit, HSBC will only give you 77k mortgage and you will have to find the 55k yourself.

if HSBC value it at 210k and you only use 105K of your deposit to keep your 50% LTV then you still have to find the extra 55k yourself.

That is my understanding

But the vendor may meet you half way as if your mortagage company valvued it as 210k then so might many others.

Or it means you are borrowing £133k at about 63% LTV - which the lender may be happy with - what is the LTV of the product you are applying for?

AdrianC

chozza said:

I'm in the process of buying a property, and the lender HSBC has given a valuation significantly lower than the agreed sale price.  I have 50% LTV so I don't believe this is the issue. I also know that they haven't visited the property so would have been a desktop valuation.
It was on the market for 325k, sale agreed at 265k, and HSBC have valued it at 210k! The broker agreed that they've clearly made a mistake, as even a quick search on sales in the area show an absolute minimum of 240k for similar properties. Just to provide some perspective, I sold my house very close by for 220k, and it was 50% smaller and significantly less desirable for various reasons (no off road parking, tiny garden etc.)
I am almost certain the price i've agreed is a very good price (having done quite a lot of research), and the broker have said I can appeal the valuation, however there is no guarantee they'll re-value it, and by all accounts it's quite rare they do.
So my question is, does the mortgage valuation really matter for me when I come to resell it and should I be bothered?

The valuation is ONLY for your lender to see what they think the property's worth as security on your mortgage.

You're paying £265k, and borrowing £132.5k. You think that's 50% LtV. They think it's 63% LtV against £210k-worth of security.

That's it. End of.
Does 63% vs 50% make a difference to the rate you can borrow at? It certainly won't make the lender walk away...

chozza

AdrianC said:

chozza said:

I'm in the process of buying a property, and the lender HSBC has given a valuation significantly lower than the agreed sale price.  I have 50% LTV so I don't believe this is the issue. I also know that they haven't visited the property so would have been a desktop valuation.
It was on the market for 325k, sale agreed at 265k, and HSBC have valued it at 210k! The broker agreed that they've clearly made a mistake, as even a quick search on sales in the area show an absolute minimum of 240k for similar properties. Just to provide some perspective, I sold my house very close by for 220k, and it was 50% smaller and significantly less desirable for various reasons (no off road parking, tiny garden etc.)
I am almost certain the price i've agreed is a very good price (having done quite a lot of research), and the broker have said I can appeal the valuation, however there is no guarantee they'll re-value it, and by all accounts it's quite rare they do.
So my question is, does the mortgage valuation really matter for me when I come to resell it and should I be bothered?

The valuation is ONLY for your lender to see what they think the property's worth as security on your mortgage.

You're paying £265k, and borrowing £132.5k. You think that's 50% LtV. They think it's 63% LtV against £210k-worth of security.

That's it. End of.
Does 63% vs 50% make a difference to the rate you can borrow at? It certainly won't make the lender walk away...

No, the deal they are offering is still exactly the same. In which case should I bother attempting to appeal it? My only concern is that the valuation may somehow affect the future sale price, although I'm not sure how. 

Seems like you're saying their valuation is more for their purposes rather than what they think the property is accurately worth when trying to sell in normal conditions.

chozza

letsbetfair said:

It's common in this kind of situation to see if the seller can reduce the price at all, alongside appealing the valuation...

The original asking price was 325k, so I've already negotiated 60k off that. It would be a spectacularly brazen estate agent to value a property at 100k+ more than its actual value.

chozza

theoretica said:

jennyred said:

I think the issue is not the resale but the mortgage offer.

if you agreed to buy at 265k and have a 50% LTV it means you are borrowing 133k ish.

if HSBC value it at 210k but the vendor still wants 265K then you put in your full 133k deposit, HSBC will only give you 77k mortgage and you will have to find the 55k yourself.

if HSBC value it at 210k and you only use 105K of your deposit to keep your 50% LTV then you still have to find the extra 55k yourself.

That is my understanding

But the vendor may meet you half way as if your mortagage company valvued it as 210k then so might many others.

Or it means you are borrowing £133k at about 63% LTV - which the lender may be happy with - what is the LTV of the product you are applying for?

My deposit is 150k and i'm borrowing 115k. Even with their valuation the deal they are offering is exactly the same. It feels like they're just down valuing it as a mitigation strategy for this uncertain market we're in.

AdrianC

chozza said:

AdrianC said:

chozza said:

I'm in the process of buying a property, and the lender HSBC has given a valuation significantly lower than the agreed sale price.  I have 50% LTV so I don't believe this is the issue. I also know that they haven't visited the property so would have been a desktop valuation.
It was on the market for 325k, sale agreed at 265k, and HSBC have valued it at 210k! The broker agreed that they've clearly made a mistake, as even a quick search on sales in the area show an absolute minimum of 240k for similar properties. Just to provide some perspective, I sold my house very close by for 220k, and it was 50% smaller and significantly less desirable for various reasons (no off road parking, tiny garden etc.)
I am almost certain the price i've agreed is a very good price (having done quite a lot of research), and the broker have said I can appeal the valuation, however there is no guarantee they'll re-value it, and by all accounts it's quite rare they do.
So my question is, does the mortgage valuation really matter for me when I come to resell it and should I be bothered?

The valuation is ONLY for your lender to see what they think the property's worth as security on your mortgage.

You're paying £265k, and borrowing £132.5k. You think that's 50% LtV. They think it's 63% LtV against £210k-worth of security.

That's it. End of.
Does 63% vs 50% make a difference to the rate you can borrow at? It certainly won't make the lender walk away...

No, the deal they are offering is still exactly the same. In which case should I bother attempting to appeal it?

Then there is absolutely no benefit in appealing it, since your appeal succeeding will make no difference whatsoever.

My only concern is that the valuation may somehow affect the future sale price, although I'm not sure how.

It can't. Nobody will even see it again. If ever you want to remortgage, a new valuation would be required.  
Yes, people will see the actual sale price, because that's public info via the LR - but that doesn't affect what the house is worth in the future.

Seems like you're saying their valuation is more for their purposes rather than what they think the property is accurately worth when trying to sell in normal conditions.

They're the same thing...
That's all the valuation is - the lender saying to the surveyor "So what do you think this house is worth, as you see it?". A downvaluation is just the surveyor saying "I think it's a bit pricey", so the lender base the loan-to-value on that. It doesn't mean you can't pay more if you want. It doesn't mean the house is any different to what you decided to pay £X for...

Why do the lender even care what it's worth? Because if you don't repay the mortgage, and they repossess, they're going to have to sell it. And what comes out of that sale may only partially repay your debt to them...

Remember, there's three different opinions as to the value - the vendor's opinion (the marketed price), your opinion (your offer), the surveyor's opinion (the valuation).

theoretica

AdrianC said:

Why do the lender even care what it's worth? Because if you don't repay the mortgage, and they repossess, they're going to have to sell it. And what comes out of that sale may only partially repay your debt to them...

So in this case, all they care is that if the property needed to be sold it would comfortable cover their loan - as you have such a large deposit they don't need a very accurate valuation for this and may have gone for a desk based valuation for that reason.