Mortgage valuations on “fixer-upper” properties

rolo267

Hi all, I am a first time buyer applying for a mortgage on a probate property in need of a full renovation. My question is related to how lenders assess and value houses that are in a state of disrepair. More details and context is below. 

The property has a working electricity, running water, central heating, and a kitchen and bathroom in working order. A large amount of the work is cosmetic, however, there is a gash in the chimney flashing which has caused pretty bad damp in the master bedroom upstairs which needs immediate attention, plus an old asbestos down pipe that will need removing, as well as some other general issues like holes in the internal walls where the property has not been well-maintained for some time. 

I’ve had an offer accepted at £330k which I felt was a reasonable price given the current state of the property vs. it’s potential. The property next door which was built at the same time and has the same internal layout and similar features (slightly bigger garden), but has been well-maintained, was last sold for £350k in 2016. It happens to also just come onto the market and sold again. I don’t know the purchase price as the sale has not yet completed, but it was advertised with an asking price of £440k (over £100k more than the offer accepted on mine). 

My question is related to how lenders will approach the valuation of my property. How do lenders come up with a value in a house that requires renovations? How likely are they to “down-value” the house further than the asking price - do they take the potential value into account or is everything based on the condition of the property today? If they give a down-valuation, is it likely to be aligned with the costs of immediate remedial works vs. the sale price? I am expecting they will ask for a damp and timber survey before providing a valuation, which I will be happy to move forward with, but I’m worried my chances of getting approved for a mortgage on a property in a state of disrepair are slim. I am already applying for a high-risk product at 90% LTV. I’m starting to think my chances of approval are slim to none, which is sad because I truly have fallen in love with the house despite all the work it needs. Any insight or personal experience in a situation like this would be much appreciated! I am a bucket of nerves. Valuation is booked for Thursday and lender is Nationwide. 

K_S

@rolo267 Quick comments based on the limited info in your post-

- the valuer will go by the present condition of the property

- the basic expectation is that the property is "habitable". Outside of things like working electricity, heating, water, kitchen, bathroom, etc., what is considered habitable is  will depend on the subjective assessment of the valuer that inspects the property on the day.

- based on what you've said I would expect it to be okay-ed or zero-valued. I doubt it would be down-valued.

- don't make the assumption that two lenders will treat it the same way. My usual approach if I've had a val fail on a subjective matter is to try with another lender that uses a different surveyor panel. If that returns a zero-val as well then I tell the client that I'm out of standard options.

If you've nothing better to do, you could read up this version of the Nationwide valuer manual here

rolo267 said:

Hi all, I am a first time buyer applying for a mortgage on a probate property in need of a full renovation. My question is related to how lenders assess and value houses that are in a state of disrepair. More details and context is below. 

The property has a working electricity, running water, central heating, and a kitchen and bathroom in working order. A large amount of the work is cosmetic, however, there is a gash in the chimney flashing which has caused pretty bad damp in the master bedroom upstairs which needs immediate attention, plus an old asbestos down pipe that will need removing, as well as some other general issues like holes in the internal walls where the property has not been well-maintained for some time. 

I’ve had an offer accepted at £330k which I felt was a reasonable price given the current state of the property vs. it’s potential. The property next door which was built at the same time and has the same internal layout and similar features (slightly bigger garden), but has been well-maintained, was last sold for £350k in 2016. It happens to also just come onto the market and sold again. I don’t know the purchase price as the sale has not yet completed, but it was advertised with an asking price of £440k (over £100k more than the offer accepted on mine). 

My question is related to how lenders will approach the valuation of my property. How do lenders come up with a value in a house that requires renovations? How likely are they to “down-value” the house further than the asking price - do they take the potential value into account or is everything based on the condition of the property today? If they give a down-valuation, is it likely to be aligned with the costs of immediate remedial works vs. the sale price? I am expecting they will ask for a damp and timber survey before providing a valuation, which I will be happy to move forward with, but I’m worried my chances of getting approved for a mortgage on a property in a state of disrepair are slim. I am already applying for a high-risk product at 90% LTV. I’m starting to think my chances of approval are slim to none, which is sad because I truly have fallen in love with the house despite all the work it needs. Any insight or personal experience in a situation like this would be much appreciated! I am a bucket of nerves. Valuation is booked for Thursday and lender is Nationwide. 

rolo267

Thanks so much for your reply! My MA did mention the option of trying another lender if nationwide decline.

What is the reason behind you saying you wouldn’t expect a down-valuation in this situation? 

Do you think they’ll want to see the results of a damp survey to decide whether it can be considered “habitable”? 

rolo267

@K_S thanks also for the link… very interesting to see some of the criteria. I really don’t know what they are going to come back with. 

ACG

If you get a desktop valuation you could get lucky. 
If you get a physical valuation, the damp will probably be an issue and there could be a retention or even a nil valuation if bad enough. 

I bought a doer upper, it came back at £2k lower than the price I offered because of work I knew needed doing. I just paid the extra £2k, I had already taken it all into account so felt it was a bit harsh on the vendor to use it to knock off the extra money. 

K_S

rolo267 said:

What is the reason behind you saying you wouldn’t expect a down-valuation in this situation? 

@rolo267 Just an educated guess tbh given the numbers in your post and the kind of issues highlighted - damaged chimney flashing, severe damp damage, holes in internal walls, etc.

If an equivalent neighbouring property in good condition would sell for 440k and your application goes in at 330k, it seems unlikely that a valuer would value the property below 330k and still consider it suitable for lending. I hope that makes sense!

Please do update the thread when you hear back from Nationwide.

rolo267

Thanks @ACG i had a text from nationwide this morning to say the valuation was booked for Thursday and that there was no need for me to attend unless they’ve arranged it with me… which they haven’t. I would take that to mean it’s a physical valuation? The property was built in the 1920’s so it’s pretty old.
I had thought they may put a retention on for the chimney flashing to be fixed and damp issue in the master bedroom immediately, but not sure. 

dougson

I was in a similar position when I bought (was a first time buyer) and got a grade 2* listed building in need of some fairly obvious major repair.

Living by the coast, damp is almost a given, although there was no visible mould or anything like that, but a visible damp patch was obvious. 

Additionally the walls needed replastering in several rooms, dated kitchen, bathroom and toilet but all 3 were fit for purpose. Of more concern was that the building didn't have a serviceable fire escape, but I perhaps got lucky as a ground floor flat (there is a basement flat too) because it was called before Grenfell. 

My original mortgage was with natwest and they approved it at purchase value, the wording of communications about survey was identical to mine, they did conduct a physical survey but without me being there. 

rolo267

Hi @dougson - thanks for sharing your experience. I hope I will get similar luck to you! There is obvious damp in the master bedroom and it’s quite severe… however the cause is obvious (hole in chimney flashing) and there doesn’t seem to be damp in other rooms, so I really don’t know. I’m just hoping it’s not a straight decline and that I still have some options. I really do love the house, even in its current state and it has so much potential. It’s one of those situations where its the worst house in a lovely area. Got my fingers crossed for good news from nationwide after the valuation tomorrow! 

rolo267

@dougson out of interest, how did the purchase price for your home compare to other sale prices for properties in the area. Did you feel you had a fair deal given the work it required? 

dougson

I would say the damp issue I had was probably less severe, the main outcome was some blown discoloured plaster. 

Very difficult to assess whether or not I got a fair deal, it was the first time I've in the road had sold in over 20 years and is a grade 2 building on Brighton seafront. Comparables were difficult, but it was definitely on the cheap side for anything ticking a similar box.

From memory I paid 267, it's a 2 bed flat of a generous size, due to central location and sea views neighbouring roads aren't very like for like, but there are relatively few 2 beds that go for under 300 here.

I felt like it was a fair deal but I am/was a ftb, had negotiated/waited out on the price pretty hard over several months. Was listed at 300k, which was still slightly cheap for Brighton back in 2019 and would have been maximum of my budget, I estimated it needed 25-30k spent on it.