Valuation lower than purchase price of flat

[stargirl04]

Hi, I'm just wondering what people's thoughts are on this and hope that I am worrying unnecessarily.

The mortgage valuation on the flat I'm buying (as a first-time buyer) has been valued at 15k below the purchase price agreed.

I expected it to be at least 10k less, as I had to pay 10k more than the asking price to secure the property. I'm in London where everything in my price range is going to sealed bids and good places are going for 10k to 25k over the asking price. I thought that, comparatively speaking, 10k over was quite cheap!

I have put down a 40% deposit, so the mortgage isn't an issue - the lender has approved my mortgage application.

What I'm concerned about is the lower than expected valuation, which was valued at 5k less than the asking price of 180k. It said in the valuation notes something like "the purchase price is unduly high compared to similar properties in the area" or words to that effect, and I am worried that I'll be stuffed when it comes to resale.

I discussed it with my bf today (he isn't moving in with me). He works in finance and his advice was:

1. If you pull out it could take another 5 or 6 months to find another place;
   

1. by that time you could end up paying more for a similar - or worse - flat, given the rising market;
   

1. mortgage valuations tend to err on the side of caution; my (his) first flat was devalued 5k under the asking price but I sold it several years later for a 40k profit... etc
   

1. In a slow market perhaps you could ask the vendor for a discount, but in this market, if you pull a stunt like that they might tell you to f**k off and you might lose it.
   

1. It's a nice flat in a nice area, close to the station and I am sure you'll make money on it when you sell it (provided it's not in 6 months time).
   

I have left a message with my mortgage broker to discuss my concerns and await his call. It must be happening a lot in London because good places within my budget are routinely going for over asking prices.

Anyone got any words of wisdom? (I know it's a bad time to buy but I need to move and it's much cheaper for me to buy than rent.)

Thanks for reading!

[stargirl04]

PS. I wasn't the highest bidder on the property - but the vendors chose me because I had a big deposit.

[trashcansinatra]

Your bf is right. Unless the valuation is affecting your mortgage or you want to sell in the next 6 months you haven't got anything to worry about.

Congratulations on finding a nice place!

[TakingTheStairs]

If it's worth it to you, then go for it. And the market dictates the price, not the bank, so if others were willing to pay more then I would find that reassuring too

Congratulations!

[thatbitpink]

I'd be very scared. I think the market is going to crash big-time. Why on earth would you pay MORE than a flat is valued at ?? People are going mad just now.

[exexpat]

The mortgage valuation is basically done to protect the lenders, and so is always on the conservative side. Has anyone ever had a mortgage valuation that values a property at more than the purchase price, or even exactly at the purchase price? I certainly haven't.

It's a real pain if it means you can't then borrow enough to buy the property, but unless it's a massive difference for a good reason (the mortgage valuation surveyor spotted major subsidence/dry rot etc) then it is just yet another sign that you are buying in a seller's market. If you are happy with the house, and have come to terms with buying in a rather over-heated market, then I don't think you should pull out. Chances are exactly the same would happen with the next property you find, by which time the market could have gone up another 5%.

[stargirl04]

Thanks for your thoughts, guys - I really appreciate your answers.

I have come to terms with the fact I'm buying in an overheated market and paying over the odds - although it could have been a lot worse; a two-bedroom ex-council flat I saw - in not as nice an area but close to the station and in immaculate condition, went for close to 25k over the asking price!

A lovely house in Welling, Kent, I saw went for in excess of 22k because that's what I bid over the asking price and didn't get it!

Another ex-council flat I saw - needing redecoration and a new bathroom - but in a nice area, I was outbid on and my bid was 7k over asking.

It is the same story time and again. One wonders what kind of places actually sell at the asking price or less? In London, at least.

Ideally, I would wait for the market to crash and buy then, but I need a place now.

Thanks again for your replies.

[Roshbegosh]

Buy it, it is a small difference in this market and the valuations aren't keeping up with the reality, plus lenders are more cautious now. You are in for the long term so even if things go badly at some point you can ride it out. It is a much bigger risk to wait, in no time you will find it unaffordable.

[BananaPie]

A cautionary tail: We bought a flat in London in 2007, pretty much at the height of the last bubble. The market was going crazy, similar to how it feels now. We paid £10k over the valuation. Sold in 2011 after prices had begun to pick up again, and made a loss of £10k. Not the end of the world, but in the same circumstances again, I wouldn't have paid more than it was valued at. Ended up feeling a bit silly.

[Roshbegosh]

banana you were very unlucky with timing, it does need to be a long term plan and you only gave it four years. If you were selling it now you would have done well. I think if the OP waits she will end up being unable to buy at all. Waiting for prices to drop substantially is risky.

[BananaPie]

Ah yes, but if I was selling now I wouldn't be able to afford the house that I bought in 2011 - as prices have gone up, the differential between the two has increased. In terms of the long term plan, a £10k loss doesn't really matter - it's just a bit galling.

OP could think about asking the vendor to meet in the middle and accept a lower offer - we did this which is why we overpayed by £10k rather than £15k...

[VivaLeBeaver]

If you weren't the highest bidder then in the future there will be other people willing to pay the amount of money for it which you have. I wouldn't worry about it, doesn't sound like you'll make a loss when you do sell.

[BananaPie]

Also, the point that "if you don't buy now, you'll never afford it" is a bit nonsensical. This is a symptom of a bubble - it will burst when prices are unaffordable - the market needs buyers to work. When we bought in 2007 we thought exactly that it was now or never. In hindsight, had we waited a couple of years we could have bought for £35k cheaper.

[allthatglittersisnotgold]

This seems to be happening a lot recently.

Had a friend who was selling her flat and the buyers mortgage provider valued flat 25k less than asking. Even thought there were numerous other properties that had sold for the same and higher on the street (London) as well. In the end, they had it revalued and put in a claim. The buyer also looked into getting a loan for the amount. (Not a mortgage). I think a lot of people will do the same thing and they are higher interest rates.

I feel as though they are trying to exert some control on the market in a way.

[HaveToWearHeels]

Your BF is correct.
A valuation by anyone is an "informed opinion" and therefore can vary wildly. Obviously a person with more experience/training can make a more precise valuation, hence why a surveyor and an estate agent can make a different valuation. Property valuation is an art rather than a science. 10k is nothing in the scheme of things and the property could well be "worth" what you are paying once you have completed.
We are completing on a house on Friday that is now worth 280k, we have purchased for 250k. The market is crazy at the moment.

[stargirl04]

Hi, thanks for these posts - it's all food for thought.

Banana - your experience is very interesting and this is what I fear in my case also, that I'll be bugg*d in the resale.

However, if I do what you hypothesised about, ie. waiting a couple of years, then I will be looking at spending £24,000 in rent - so it may be a case of swings and roundabouts.

If I do need to move after a price crash I will simply rent the flat out and ride it out - and my mortgage is fixed for 5 years anyway.

The prices in the block where I am buying haven't gone up much as they went on sale as new builds in 2005 and then 2008 saw the credit crunch. Some of the flats sold between 2008-2011 were sold at a loss.

How risky is it to ask the vendor for a discount off the asking price, in this market?

There was one higher bidder than me for the property, and they bid £1k higher, but I got the flat because of my big deposit.

[stargirl04]

Also the remaining lease is 89 years, so in a few years I will be looking at having to extend it.

[allthatglittersisnotgold]

Is your flat share of freehold or leasehold? Don't let the extension of the lease put you off too much, we extended the lease with the other sharer of freehold as it were and it all came in under 2k in total. (If not less). When we'd been told horror stories of 10k lease extensions.

I agree that unless you want to move out in under 5 years it won't be a problem. The market could/likely go down/stabilise a bit, but in 10 years time it'll all be a different ball game anyway. Renting IS throwing away a lot of money.

[LondonGirl83]

If you,'ll waste that much in rent then it's a no-brainier. I think it's fairly risky to go back on price but it depends on if you'd be willing to lose it if they said no.

We bought in 2007 and sold last year at a profit after a period of negative equity. However, even if we'd remained in neg equity we would still have been better off compared to renting

[forgetdieting]

stargirl04 The vendor prob knows you are a better prospect (at completing the sale) as you have a large deposit, but also because you have nothing to sell either. Both bargaining tools imho. Did the mortgage valuation involve an in-depth survey?

[stargirl04]

Forgetdieting, I was advised to have a valuation only as the building was only built in 2005, so a full structural survey would have been pointless. And loads of people told me that homebuyers' reports are not always reliable - I know of a couple of cases where damp was missed and one friend said his homebuyers' report missed subsidence and damp!

So sadly, no "faults" to negotiate on..... perhaps with hindsight it may have been a mistake not to get a homebuyer's... but that would cost me another £500 now...

To other posters, yes, the minimum rent I would pay over two years in London would be £23-24k, as you can't get anything much less than a studio or a shoebox here for less than £1,000 a month.