House buying advice LTV

ashleighcraig_2

Hi all, I'm looking for some advice.

If a property is worth £75,000 but I would only need £35,000 to purchase the property, why would I still need a 15% deposit based on the £35,000 although the property is worth £75k? Apparently you can only borrow 85% of what you are getting the house for and not 85% of the house value. You need to wait 6 months after purchase before you can then get it revalued and borrow the 85% on the value of the property. Why can't the LTV be there when you first purchase the house? I don't understand this at all. 

Thanks in advance

getmore4less

Depends why you only need £35k to buy a £75k house. 

ashleighcraig_2

Private sale. We have been given the chance to pay 35k for the house. 

MovingForwards

From a friend or family member?

ashleighcraig_2

Friend but,  why does it matter? If a house is worth 75k and you need yo borrow 35k which is over 50% LTV, why advise that you can borrow 85% of the 35,000 and not the value?

MovingForwards

It matters as the equity could possibly be used as the deposit, with a mortgage for the reminder if it was family, won't work if it's a friend as lenders don't like it.

You can only borrow upto 90% of the £35k and will need at least 10% deposit, plus all the other associated costs. Although most mortgages require 15% deposit. Subject to income, affordability and criteria.

CSL0183

ashleighcraig_2 said:

Friend but,  why does it matter? If a house is worth 75k and you need yo borrow 35k which is over 50% LTV, why advise that you can borrow 85% of the 35,000 and not the value?

Why would a friend sell you their house for 46% of its value and give you that level of discount? 15% of £35k is peanuts, £5,250. Why can’t you just pay that? 

ashleighcraig_2

CSL0183 said:

ashleighcraig_2 said:

Friend but,  why does it matter? If a house is worth 75k and you need yo borrow 35k which is over 50% LTV, why advise that you can borrow 85% of the 35,000 and not the value?

Why would a friend sell you their house for 46% of its value and give you that level of discount? 15% of £35k is peanuts, £5,250. Why can’t you just pay that? 

It doesn't matter why I am getting the house for £35k. I Just want to know why you still need a deposit on the price you are paying for it when the value is much higher. When did the Loan to Value stop for purchasing the house, but you can do a loan to value after 6 months.

[Deleted User]

Lets imagine that lenders had none of these rules in place:

Friend buys a house for £75k using dirty money
Sells it to you for 35k and lender takes the equity as deposit. The deposit is big so you get a really good rate.
Solicitor doesnt need to do proof of deposit checks as the deposit is in the property. 
You complete on the purchase, friend gets £35k and then you remortgage at the full value on day1 and take out an extra £30k ish.  You give this to friend who now has £65k of clean money.   
Money successfully laundered. 

With the lenders checks in place:
Personal deposit required so bank statements are scrutinised by solicitor
Wait 6 months to remortgage at true value so cant gey any more money out quickly 
Need a stated and proveable reason for remortgage so cant just give money to a friend. 
All of these checks make it less of an attractive proposition to launder money. 

For what its worth, lenders are happy enough to lend on full value when its direct blood relative. Just not with unrelated people as they feel the risk is too high. 

CSL0183

This happens all the time though, you could put in an offer for £270k on a £300k valued house and it be accepted due to needing a quick sale. 

You have gained 10% equity straight away but you can’t use this as a deposit, you would need a 10% deposit on the purchase price of £270k, not the £300k valuation. 

A solicitor will scrutinise why you are getting the house from a friend at a much reduced rate too. Are they of sane mind?

Meh123

Because the purchase price is 35k and most lenders want a 15% deposit, it really is that straight forward.  

I’m in the process of buying somewhere and due to them needing a quick sale they put it on the market for a really competitive price. However even though the lender knows it’s worth more and I know it’s worth more I’m still paying the 15% deposit on the agreed price. There’s no point fighting it or even being annoyed by it because they’re not going to budge on their deposit requirement.
plus, as already mentioned.....money laundering, the more you fight it the dodgier the situation is going to look to a mortgage broker, lender and solicitors.