Son bought at auction for less than mortgage offer

lemonpopsicle

Hi, my son bought his first property at auction (Modern Method), last week, and won it for less than his mortgage offer. He had to pay £6600 fees upon winning. Can this be added to the hammer price and the total put forward to the mortgage company? Also, he has a LISA, which he will totally withdraw, meaning that there will be approximately £10000 that he won't need for the purchase from the mortgage company. Can the total mortgage be drawn down to start the extensive renovations? Thanks

MWT

Others with more experience will confirm, but my understanding is that the reservation fee and information pack fee are just his cost of buying and like survey/legal fees, cannot be added to the mortgage as they do not form part of the price paid for the property nor are they a deposit.

Similarly his solicitor will request the funds from his LISA which are required to complete the purchase, anything withdrawn over that amount will attract the 25% penalty.

Regarding the mortgage, the offer he has had (is it an offer, or just a decision in principle?) now needs to be confirmed assuming he is going for a normal mortgage, and that will be adjusted to match the price he has actually agreed to pay less his deposit. The lender is not going to advance more than the planned LTV.

Hopefully he checked the legal pack on the property before bidding so he has confirmed that the house is suitable for a standard mortgage… ? (particularly important if the planned renovations are significant, or there are basic necessities missing like a working kitchen/bathroom)

… .

Isthisforreal99

Surely these were questions that should have been asked prior to committing to purchase.

Caz3121

Mortgages are based on the valuation or the purchase price of the property whichever is the lower

I suspect he was maybe given an illustration based on borrowing £x on a property with a valuation/purchase pice of £y. If Y is now lower then X will be lower

It is usual to fund the fees and renovations separately

soolin

My understanding is that a mortgage is a secured loan based on the cost of the property, so if a house is valued at say £200K then that’s what the mortgage company would be likely to get back if mortgagee defaults. If they lend £210K then the mortgage company is at risk for the extra £10K.

I know there are mortgage companies that claim to lend more than 100% of the property cost but I don’t think it is routine and surely must be arranged in advance.

My friends son currently has a mortgage offer, but no house purchase as yet, he can borrow up to x amount but the mortgage company are basing that on a cash deposit that he and his partner have saved so aren’t even prepared to lend 100% of the house. They are not going to actually just give him x amount, the final amount will be based on the cost of the property less the deposit he has said will be paid.

Going back to the OP I would also hope that all the on costs of buying at auction have been investigated. The immediate down payment is a must of course , plus solicitors costs and as has already been raised whether the property is mortgageable , as some auction properties are sold via auction as there are issues which means a mortgage might be difficult or expensive.

lemonpopsicle

https://forums.moneysavingexpert.com/discussion/comment/82051078#Comment_82051078

Thanks for your reply. The estate agent/auction house were not very clear on whether the reservation fee could be added to the hammer price, it doesn't really matter to him either way. It's a full mortgage offer following valuation. The property has a kitchen and bathroom.

lemonpopsicle

https://forums.moneysavingexpert.com/discussion/comment/82051088#Comment_82051088

We did and didn't get a clear answer from the estate agent/auction house. He wasn't prepared to go ahead without a full mortgage offer in place, because the reservation fee is non refundable. It means that now his mortgage will be even smaller (£77k)

lemonpopsicle

https://forums.moneysavingexpert.com/discussion/comment/82051425#Comment_82051425

The reservation fee was paid within 2 hours of the end of the auction. He received a full mortgage offer following the mortgage company valuation, he wouldn't have bid otherwise, because the reservation fee is non refundable.

saajan_12

https://forums.moneysavingexpert.com/discussion/comment/82051429#Comment_82051429

Okay, so the lender will PROBABLY reduce their valuation of the property since evidently the seller was willing to let it go and no buyers bid higher than the £sale price. So while not a must, lenders will almost always cap their valuation at the price paid (unless its a full or partial gift between family etc).

That would be the first port of call.

silvercar

Also, the product you have chosen will probably have a maximum LTV and the lender will base that LTV on the lower of the purchase price and valuation.

Isthisforreal99

https://forums.moneysavingexpert.com/discussion/comment/82051457#Comment_82051457

Why were you asking them and not the mortgage provider? They aren't going to lend £90k on a £77k property for example.