Advice on New Mortgage

cardiffcityfc1

Have placed an offer of 90k on a repossessed house which is currently up for 100k with an estate agents (prepared to obviously increase offer if needed!)

My dilemma is that when i rang Abbey who we currently have a 72k mortgage with and 70k remaining (9 months into a 2 year fixed deal) they announced that we could quite easily have a re mortgage up to 130k :j but with the current state of the market they would not be able to lend additional money on top of the purchased price due to the risk of negative equity. Our current house is valued at 85k which when sold would give us 15k profit although 9k of this would need to be used as a 10% deposit for the new 90k mortgage with abbey leaving us with 6k in our pocket..

With the house being a repossessed i'd estimate we would need around 10-15k additional borrowing on top of the purchase price to make the house how we we would want it (would prefer to have the additional money on a mortgage to make the monthly payments easier and not have to paying out on another loan). And would be using the 6k made from the current house profit to pay off current overdraft and 2 credit cards.

How are other mortgage lenders at the moment in respect to lending additional amounts over the purchase price?

I then had a thought that if the 90k was accepted about possible ringing Abbey back up and perhaps trying to win them over of not being scared of any negative equity (if the purchase price is 90k and the estate agent valued it at 100k originally, surely abbey could see that lending me 100k wouldnt result in negative equity as we would be doing the house "up" with the additional money) - Has anyone had any luck in trying to "win over" a mortgage lender before?

Sorry to be a bit too in depth, your advice is much appreciated

Tiddler_2

Hi,

Couple of points - just because the Estate Agent has valued it at £100k doesn't mean it is worth that amount.

Secondly and more importantly some lenders will allow you to borrow additional amounts over the purchase price of the property to do home improvements. Ideally you should have some quotes for the works you want to do so that you have an idea of the cost of the work, and then the Lender's valuer can also take into increase in value these works will make to the property.

Bad news is that it is rare for a property to be increased in value by the full cost of any improvements.

The Lender may keep the money back until you have had the works done in order ensure that the mortgage won't go above the property value.

Hope that makes sense!!

Conrad

Tiddler you said "some lenders will allow you to borrow above purchase price"

That as Im sure you now realise is completely incorrect. I think what you meant to impart was that if a lender can at a future date demonstrate the value has increased, then they can consider further lending but of course only up to 95% of the then value.

Clients must also note if they borrow on a 90% scheme of from a lender that only goes up to 90%, then an additional 5% is unlikely later on.


To the OP:
The value is the price you pay. People have these 'old wives tale' idea that a repo is cheaper, but this is not the case now as lenders have to achieve market value and the market value is what you will have paid given the property condition and the current market. You will need to bring about improvements to increase the value. If you go mad and become a drunk the day you get the keys and make no improvements then the lender will see no value increase or possibly a decrease in this market.

Tiddler_2

I probably didn't explain it simply enough but what I was trying to say was:

If the purchase price is £90k then they will lend you 95% (or 90% depending on the lender) of that figure. So this would give you £85500 (or £81000) to complete the purchase.

If you then had invoices showing the work would cost £15000 AND the valuer thought that after completing the works the valuation would increase to £105,000 (as I said this would be rare for the value to increase by the full cost of the works, but it's not unheard of) then the mortgage company would lend up to 95% (or 90%) of this improved valuation.

Thus giving you a total mortgage of £99750 (£94500)

The difference of £14250 (£13500) would be retained by the mortgage company until the work has been completed.

Hope that makes it clearer!