Mortgage valuation survey- are we paying more than the properties worth?

Naiverenovators

Hi, we’d really appreciate some advice. We’re buying our first home together and it’s a renovation project which neither of us have done before. We’ve seen a 1930s house we love and it was on the market for £530,000. Unfortunately no neighbouring homes have sold for many years and the house we’re buying has been owned for 45 years by its current owner. Houses on nearby residential streets aren’t similar in size and type so we can’t use the price history for those as an indicator. We haggled the price of the property to £490,000 with a view to carry out a level 3 survey and should any significant works be required we would ask for further reduction in price. The level 3 survey revealed the following- some minor roof repairs needed, some replacement of delaminated bricks and repointing where hairline cracks have appeared due to replacement of windows, rewiring required, new boiler system, damp proofing needed near chimney breasts that don’t have adequate ventilation. Overall the property needs completely decorating, plastering, new bathroom and kitchen. There’s an external brick garage that needs repairs due to cracking and bowing on one side. Basically a big renovation job. We’re also looking to extend a small amount but understand that’s our preference and nothing to do with the price we chose to buy it for. The seller only agreed to come down to £480,000 after the level 3 survey results. We accepted £480,000 but all this time we’ve not really been sure if we’re overpaying for the amount of work required on the house as we don’t know it’s worth after we renovate it. Today we got our Halifax mortgage valuation survey results. It states “in its present condition with the current state of the property market my valuation of the property is £480,000”. What we really want to know is are we overpaying? It says the price is based on the property’s current condition but it was just a mortgage lenders basic valuation survey which doesn’t include a look at the inside. Does this mean the house is worth £480,000 regardless of the condition of the property inside? Sorry for the long post but we’d really value some guidance as we’re not sure if we’re making a mistake here! We really love the house but we’re naive when it comes to reno projects!

DE_612183

A property is worth what you're willing to pay for it.

As you said - there are not many comparable so nothing really to say what is is a good price or not.

If someone else cam in and offered £481,000 would you be devastated?

Naiverenovators

I agree with this but my concern is if we spend £150,000 renovating the home are we going to end up making a big loss if we need to upsize in say 5 years time? We could also do with saving as much money as possible for the reno so I’d be a bit devastated if a house a few doors down went up for 500k and was in good condition if that makes sense?

Hoenir

The mortgage valuation survey is for the benefit of the lender. Simply to ascertain whether the property provides adequate security for the monies being advanced. It's not a precise science. 

You may well not recover all the money you expend on the property in refurbishing it to your personal tastes. 

ReadingTim

A property is "worth" what someone's willing and able to pay for it, and what the seller's happy to take for it.  

The mortgage company only gives an indication of what they think it's worth so they can justify the amount of their own money they're willing to risk on it by giving you a mortgage.  As long as they can get the amount they lend back relatively easily in the event they have to repossess and sell, they're happy - so the lower the loan to value, the better.  They don't care whether you lose all the money you put in, or not.  

Where there are no issues with LTV etc and they're happy to lend the amount you asked for, it's totally normal for the market value to equal the offer price. 

DE_612183

Have you approached an estate agent ( perhaps different from the one that you are buying through ) and asking them what they think the re-sale price *could* be should you sell in the future?

sheramber

What you could sell it for after renovating will depend on the market forces at the time. 

Nobody can foresee that. 

New kitchen, new  bathroom and redecoration may make it more sellable but will not necessarily increase the value by the cost.
 

A buyer may not like your choices. 

DE_612183

Naiverenovators said:

I agree with this but my concern is if we spend £150,000 renovating the home are we going to end up making a big loss if we need to upsize in say 5 years time? We could also do with saving as much money as possible for the reno so I’d be a bit devastated if a house a few doors down went up for 500k and was in good condition if that makes sense?

Sounds like you would be better off buying a new build or one that has all the work already done so you don't risk losing out

Albermarle

Naiverenovators said:

I agree with this but my concern is if we spend £150,000 renovating the home are we going to end up making a big loss if we need to upsize in say 5 years time? We could also do with saving as much money as possible for the reno so I’d be a bit devastated if a house a few doors down went up for 500k and was in good condition if that makes sense?

On the other hand if it sold for £700K you would be pleased.
Property development is risky and can go either way.

By the way £150K is a lot even for a big renovation, I guess it will depend if you extend though as that is expensive.

rewiring required, new boiler system, 

It would be unusual for a surveyor to say such things.
For the electrics they usually recommend to have an electrical survey, and usually decline to comment much on the heating system.

Naiverenovators

@Albermarle yes this would be with an extension. We had a verbal chat with our surveyor after to discuss the findings and she said the fuse box was old and likely to fail and electrical test. With the age of the house it would need rewiring. As for the boiler he was able to confirm it being serviced last year but said it was over 20 years old so will need replacing at some point. 

Thanks for everyone’s help. I think we’ll take the gamble based on what we know so far. We’d love to buy a house already done up but most properties of a similar size in our town are around 600-650k and would still require changing of the bathroom and kitchen to get it to our taste. It’s money we just don’t have to spend for things like that if we’re purchasing at a higher purchase price so this has ended up being our compromise. 

Albermarle

We had a verbal chat with our surveyor after to discuss the findings and she said the fuse box was old and likely to fail and electrical test  With the age of the house it would need rewiring

Often a new consumer unit ( to replace the old fuse box) is sufficient.
Many houses have wiring 50 years old and still OK.
However if you are going to be stripping the house back to basics anyway, then rewiring is less of an hassle than normal.