Mortgage valuation.

[AnonymousBird]

We are about to downsize, but still need a mortgage to cover the purchase price. Total mortgage facility is approx 20% of purchase price, though we actually only need half of the mortgage amount to secure the purchase. The rest of the facility is to give us a cushion for some of the extra costs, and some new things we will need for the house. All agreed and ok.

The valuation is going to be done soon, and I am a bit anxious that the mortgage co's valuation will be less than the price we are paying. The house itself appears more modest than the price might suggest but it is brand new and has been finished both externally and internally to an exceptionally high standard with many built in additional features which we believe are worth paying a bit more for than your average 4 bed in the area. For instance the heating and hot water systems are state of the art, bills are expected to be really small. Also the glazing that has been used and insulation materials are some of the best available. We did not commission the house, it's a total one off and not part of a development, but know much of the detail of the plans and development.

Do mortgage valuers look at these types of things, ie. who the architect/builder were, the awards they have won for these types of ground breaking houses, the fact that it is pretty much an eco house and so on with all these extra features. Or do they just go "this town, this street, 4 bed, average price".

And, if their valuation is lower than our purchase price (which it will be if they take that approach), does that mean the mortgage co can turn us down, despite the fact that Loan to Value ratio is only approx 20%?

The only time I have had a mortgage valuation before, the guy barely drove past the house, didn't go anywhere near it (on his own admission) in coming to his valuation sum.

Tips gratefully received.

Mortgage company just need to be sure that if you default and they force a sale the loan is covered. After that, the bigger the difference between the loan and the actual sale price the less risk there is for them. This decreasing risk is reflected in your interest rate. By the time you get down to around 40% LTV the interest rate will be as low as it will ever go, so at that point they are as comfortable as they can be with the risk they are taking on. At 20% LTV the estimate of value can come in low and you are still in that area of minimal risk for them so I'm sure you'll be fine!

Bluegrass - that all makes sense to me, and what I was hoping, but just had so many steps to get to where we are today, house to buy, finally, mortgage agreed in principle, subj. to valuation, that I lay awake last night worrying about what the valuation will be and I just know a standard valuation will be lower than our "valuation", ie. what we are prepared to pay for THIS particular house!!

Hi Anonymous. I don't want to make you worry more but I have recently fallen victim to this, though we were on the other side of the fence in that our buyer's valuation of our house came back lower than they were wishing to pay based on their mortgage company's valuation.

The ONLY reason I am worrying you with it is because the circumstances were similar in that we'd bought the house only the year before and it was a brand new house when we purchased it meaning that there were no comparable values in our development. In the end it was down-valued by 40k and the mortgage company weren't prepared to offer the mortgage on that basis, it was a similar LTV amount to you.

Having said all of that my EA said that in the circumstances he felt that it was the particular surveyor and that we had just been exceptionally unlucky. He also said that the purchaser could appeal and ask for it to be reconsidered or the go to another mortgage lender who would do their own valuation as it was unlikely that the same thing would happen again. My dh works closely with Bank of Ireland who take on these kind of mortgages frequently under those circumstances. Either way it doesn't have to be a disaster even if it does come out negatively is what I'm going a long winded way about telling you!

In the end our purchaser pulled out though I don't think it was just that as she'd faffed about and lied a number of times throughout the process (even assuring us that she'd got her mortgage offer even when I pointed out she hadn't had a survey yet!)

Buying houses is such a nervy time that it is normal to obsess about things going wrong but as my EA said maybe 1 in 100 valuations comes out negatively so the odds are pretty well in your favour

If she lied about some things, perhaps she had lied to the mortgage company about her situation, or to you about how much she was actually trying to borrow versus the cost of the house!!! I struggle to see how a mortgage company offering, say, a £100k mortgage on a house costing £500k can turn you down if the valuation comes in at £450k. They are secured four times over for their share.....

Anyway, fingers crossed, but I won't sleep that well until it's gone through and if they say no I will be devastated.

It depends on the LTV offer on the mortgage.

If someone has a £100k deposit, offers on a house worth £500k, and applies for a 80% LTV mortgage, the mortgage company will offer them £400k.

However, if the valuation then comes back at £450k, the mortgage company will then only be willing to offer them £360k at the 80% LTV of the mortgage. If the mortgage company were to still offer £400k on a property only worth £450k, that'd then be an 88% LTV, so probably actually a 90% LTV mortgage - which would be charged at a higher rate because of the additional risk.

So if the property comes back under-valued, the buyer has five options a) appeal the valuation b) negotiate a reduced price with the seller of £450k c) find an extra £40k themselves to make up the shortfall between the £400k they thought they'd be getting from the mortgage company and the £360k they are now getting d) apply for a new mortgage in the hope the valuation will come back at £500k or e) pull out of the purchase.

It sounds like, in suzyrut's case, that she wasn't willing to accept a reduced offer of £450k and the buyer didn't want to appeal/apply for a new mortgage/or make up the shortfall themselves. If a mortgage company tells you that a property is worth £50k less than you were intending to spend and the seller won't reduce the price, then it might well make sense to pull out.

But I don't want to worry you too much, OP. As a seller, buyer and then remortgage, I've had three valuations done in the last year. In each case, I was really worried they'd come back under-valued, as I was offering or receiving the highest price ever paid on that street (crazy London prices). Every time, my worrying was for nothing - it came back fine.

I think a valuer is more likely to give a more relaxed/generous valuation if your LTV is lower, even though they're not meant to. So, if you're applying for a 80% LTV and what you're offering is in the ballpark of what the valuer thinks it's worth - i.e. isn't totally crazily overvalued - then I think they'll say it's ok. Especially if you're in an area with some price volatility, or if you're buying a unique house that's hard to compare to others. So I think your 80% LTV will still be in your favour.

My situation is, for the sake of argument, using the figures I stated above roughly this:

£500k offered and accepted as purchase price, which is £30 less than asking price. I suspect it will be "valued" in the region of £450-460k as the valuation won't take into account the special aspects of the house that we believe enhance its value and we aren't alone in thinking this as there was a lot of interest in the house.

I have £400k to put into the purchase from selling my current house.

I need a £100k mortgage so I am applying for roughly 20% LTV on my calculation, 22.5% if they come in with a £450k valuation. Presumably, as long as they are well covered for their loan amount, it's my business if I appear to be slightly "overpaying" for the house because it is exactly where I want it and it has all these features we particularly want?

As your LTV is only 20%, and you have an 80% deposit, then you'll be absolutely fine.

If the mortgage comes back undervalued, your LTV will increase, but it'll still be way under the LTV agreed on your mortgage (which I'm guessing is something like 50 or 60%).

In my limited experience of two house purchases, the valuation has come out as exactly the same as the offer price, which makes me assume that the surveyor gets a range of acceptable values and as long as the offer price is within the range that will be the value. They will definitely take new build / Eco features into account for the valuation, not just 4 beds in such and such a postcode as that would give a massive range of prices in most areas, just as if it was dilapidated the value would be lower.

As others have said, even at an undervalue I can't see it being an issue with such a low LTV. And if it was and you had to offer less, surely other buyers would be in same position if not cash buyers, so the vendors would have to rethink sales price.

Well, we did think that if the valuation is low we might go to the vendors and go "hang on a minute"!!!! But to be honest, we are happy with the price we are paying. It's down from asking, and we do believe it is the right price for this house, which is completely different from any other house in the same area. The vendors actually went with the estate agent who gave them the lowest valuation. Two others gave valuations £50k higher, but I think they realised that was just a bit too much, and rightly so!

It is a low LTV whichever way you look at it, and yes, as you say, it is funny how valuations can absolutely match the purchase price - that happened to us last time, a very odd price, with a random 300 quid, and the valuation matched, to the 300 quid!

just hope the bank see it this way..... it's not been a smooth ride. Despite us having 80% of the purchase price as "cash" and a very good income between the two of us they will only lend us a really small amount - don't ask, all crazy, but the new criteria and limitations ARE INSANE!!!!! They will only lend us less than our annual income so it has been a battle, so now praying we can make this work as it's our dream house!

Hi as cunningplan said that was basically the situation, I wouldn't accept a lower offer as it would have made our onward purchase impossible. However the bank were insisting that the valuation had to match what she was paying for the house before they would loan even at a low LTV. As I mentioned some banks have stricter criteria on this than others, and she wasn't prepared to go with another mortgage company.

When do you find out anonymous