Mortgage Valuation Down Valued, Funding Optiona

Wafc03

The situation that I’ve got is as follows...

We have agreed a purchase price for a property at £510,000. Our mortgage amount is £295,000 with a deposit of £215,000 (57.85 LTV).

We received the valuation back yesterday (done via a desktop valuation model) and it’s came back as £420,000, this is £90,000 less than the £510,000 purchase price that we’ve agreed. I’m not sure how or why it’s so far apart (based on the properties in the area it really does seem like a crazy low valuation).

The ‘to do’ list that I’ve received states that because the valuation is £420,000 the maximum lending on our current chosen product (60% LTV) is £252,000 and asks me to advise how we want to proceed.

Having discussed the situation with friends, I’d like to understand if the below sounds possible and is a common scenario.

What I’d like to be able to do is still borrow £295,000 with a £125,000 deposit against the £420,000 valuation that has come back on a 1.70%, 75% LTV product.

I believe that would mean my LTV on this would be circa 70.24%.

We would then fund the £90,000 difference of the purchase price through savings / equity on the sale of my property.

Is it possible, common etc to only request a mortgage amount for part of the purchase price, and then make up the different to the full purchase in in cash?

Thanks

davidmcn

Wafc03 said:

Is it possible, common etc to only request a mortgage amount for part of the purchase price, and then make up the different to the full purchase in in cash?

That's what always happens, unless you get a 100% mortgage. And it's what you were already planning to do, it's just the amounts have changed.

csgohan4

Yes you can make up the difference in your own cash. Have you considered the house as overpriced? have you considered reducing your price

K_S

@wafc03 You can plug the gap with your own cash, the lender should have no problem with that.

Wafc03

@davidmcn @K_S thank you. So basically borrowing with the mortgage lender doesn't have to be Purchase Price = Loan Amount + Deposit Amount.
It can also be Purchase Price = Loan Amount + Deposit Amount + Cash outside of the mortgage application?

@csgohan4 yes we've considered the valuation but honestly the difference was a massive shock. We had a recent sale fall through (our buyers buyer pulled out) a few streets away for £445k and we were then planning to spend circa £50k as it need a lot of work doing to it. That house was smaller and nowhere near as nice yet the valuation came back fine (i'm not sure if it's because we did a home buyers survey on that property and on this one we've just done a valuation, which turned out to be  desktop model).
We've viewed a lot of houses in the near by areas / streets, which have all sold for more than this valuation (in some cases over £100K more) and this house is in our opinion the best of the bunch by quite a long way in terms of size and quality of finish in the house (the current owners have pretty much renovated the whole house since they bought it in 2013).

davidmcn

Wafc03 said:

@davidmcn @K_S thank you. So basically borrowing with the mortgage lender doesn't have to be Purchase Price = Loan Amount + Deposit Amount.
It can also be Purchase Price = Loan Amount + Deposit Amount + Cash outside of the mortgage application?

I'm not sure what you think "deposit amount" means, but it's just the price minus the loan amount. 

Wafc03

@davidmcn I know it should sound simple, the valuation but just threw me.

Would I be right in thinking then that the deposit is just the same amount, I’m just borrowing on a higher rate product?

So based on the original purchase price, and valuation, of £510k I’m borrowing £295k with a deposit of £215k on a 1.44% 60% LTV product.

but with the £510k purchase price and  £420k valuation, I’m still borrowing £295k and still have a £215k deposit but I’m just borrowing on higher LTV product of 75% and paying a higher interest rate of 1.7%?

Thrugelmir

Wafc03 said:

We received the valuation back yesterday (done via a desktop valuation model) and it’s came back as £420,000, this is £90,000 less than the £510,000 purchase price that we’ve agreed. I’m not sure how or why it’s so far apart (based on the properties in the area it really does seem like a crazy low valuation).

Have you asked if a formal physical valuation can be undertaken given the disparity. 

Wafc03

@Thrugelmir yes that was one of the first questions I asked. The lady I spoke to said that there was no right to appeal the valuation just because it was from a desktop valuation. When I asked about a physical valuation she said it wouldn’t matter as their policy was that they trusted the desktop process.
I’ve got a call with my original mortgage advisor tomorrow to understand more details of what the options are.

Thrugelmir

Given a physical valuation is at your expense that's somewhat surprising. 

MWT

Wafc03 said:

I’ve got a call with my original mortgage advisor tomorrow to understand more details of what the options are.

See what your advisor suggests, but can you identify a small number of similar properties that have sold recently close to your offer price?

Be strict when considering what is a similar property and you are looking for actual sales, not what people are asking for...