[Buying] How do people afford offers over asking price?

juliushibert

I'm looking for advice on the current property market and how to fund / be competitive when most properties are going for over asking price. Seems like most EA are saying properties are going for 5-10% over the Home Buyers report valuation. This is especially the case if it goes to a Closing Date. We're buying in Scotland and it seems like there's way more buyers than sellers, with most properties selling in 1-2 weeks. With many going to closing date.

TL:DR

How do people afford to offer over the asking price / Home Buyers valuation price?

Questions

• Should I use a part of my deposit to offer above the Home Buyers Valutation price?
• Is it worth stopping the search for the time being and trying to save extra money to be able to add on top of the Home Buyer valuation without dipping into the deposit savings?

Background

• I'm a first-time buyer buying in Scotland.
• Looking at properties approx £200-300k.
• Deposit of £45K
• We put in an offer on a property that went to closing and were outbid. We were told by the Solicitor they thought it went for 10%+ over the asking price. The property was valued at £260K and we came 6 out of 6 bids.

user1977

You afford it by having sufficient money - and take into account that for mortgage purposes, the value is the HR valuation (or the agreed price, if that's lower).

So for something valued at say £250k, with a 90% LTV mortgage you can only borrow up to £225k, no matter how much over the HR value you've bid e.g. a price of £275k means putting in £50k of your own money.

juliushibert

That makes sense and what our mortgage advisor has said, anything above the valuation has to be found by us. 

Does it make sense to use some of the deposit funds to offer over the valuation amount? Therefore having a lower deposit? Or save for a bit so we have some funds to go over the valuation, but presumably the market will continue to increase in value in the meantime? Or something other means I’ve not even considered?

theoretica

juliushibert said:

Does it make sense to use some of the deposit funds to offer over the valuation amount? Therefore having a lower deposit? Or save for a bit so we have some funds to go over the valuation,

I am a bit puzzled - what is the difference between your current savings 'the deposit' and any potential future savings 'to go over valuation'?  It is all money for you to combine with mortgage borrowing as you see fit. 

A large number of people who are buying now are offering over HR valuation - if you decide to do so you would be far from alone.  Personally, I would keep looking, and keep saving too.

user1977

juliushibert said:

Does it make sense to use some of the deposit funds to offer over the valuation amount? Therefore having a lower deposit? Or save for a bit so we have some funds to go over the valuation

I'm also not sure what distinction you're drawing between those options.

sheramber

What do you mean use some of your deposit to go over the HR price? Your deposit will be the difference between the accepted offer and the amount  you can borrow. Scotland has traditionally been ‘ offers over’.I bought last year in the Edinburgh area and had to go 16% over the HR price.

juliushibert

To clarify, I have £45k in savings which I can afford to put towards the property purchase. Being niave as a FTB, I’d presumed that would all go towards the deposit of the property. Which dependent on the HR valuation, this is approx 15-20% deposit. 

What I’m thinking, should I use some of the £45k of savings, say up to 50% of it as an additional offer over the HR valuation and then use the remaining amount as the deposit. So effectively reducing the size of the deposit? 

Does that make sense / clarify things?

AFF8879

If you know you will end up paying 5-10% over the Home Buyers report, then you need to factor that into the price bracket you search for. I.e. you should be looking in the 180-230k bracket instead of 200-250k.

user1977

juliushibert said:

Does that make sense / clarify things?

Not really! The "deposit" is just whatever equity you've put towards the price, no matter what the valuation is. And it sounds like you're proposing to put all of the £45k into the house anyway?

74jax

If a house is on the market at offers over 100k and you -
* Offer 100k, you use 45k deposit and mortgage for 55k.
* offer 110k, you use 45k deposit and 65k mortgage. 
* offer 120k, you use 45k deposit and 75k mortgage. 

I'm lost with what you are suggesting you do with the 45k?

juliushibert

If I'm understanding you correctly the deposit is irrelevant. And the savings of £45k should be used however I see fit? Make an offer over the asking price and use what's left of the savings as a deposit? 

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As an example, HR valuation would say property is worth £250k. So £250k - minus a deposit amount is the max a lender will lend on the property. If I want to make an offer over the valuation, then I need to source the money myself as no lender will lend me it. 

So saying the following

- 45k to put towards the purchase 
- use 20k as an offer over the valuation
- use remaining 25k towards deposit, on the basis that most lenderw require a minimum of a 10% deposit to get a mortgage. 

This is just an example of how the 45k of savings could be used towards a property purchase facotring the likelyhood of making an offer over the valuation