lender valuation and full mortgage application advice for a total novice.

[redmarkone]

Ive read through previous threads but still cant really work it out.

We have an offer accepted on a house we plan to live in for a long time, top of budget, very substantial stamp duty bill etc and think we need to start moving along with things.

can anyone explain the lender valuation. say price of 400k is agreed on house and i have a deposit of 100k.

when the valuer considers property, do they have to agree its worth 300K (to cover their lending) or do they have to think its worth market value, so the 400k?

From reading previous threads, i get the feeling the lender needs to agree its worth market value and not the amount you need to borrow.

Is that correct?

Can anyone explain what the lenders consider when you make a full mortgage application following the in principle one? what do they want to know apart from earnings and bank statements? is there such a thing as a stress test and what is it?

i know there is a lot of threads here but the penny just wont drop!

thank you.

You will see that mortgage rates differ depending on the loan-to-value (LTV) ratio.
The higher the deposit you put in, and therefore the lower the LTV, the lower the rates for your mortgage

This is because it is a lower risk for the bank

If you borrow 90% of the value of the house, and then prices drop, and you get the house repossessed, the lender is unlikely to recover what they've leant you. Therefore you pay a higher interest rate than if you have a 30% deposit

When you buy a £400k house with a 75% LTV, they are going to look for 2 things

The first is what the house is worth so if you default on the mortgage, will they get their money back. And is there a buffer in there because if they have to sell at auction or in a falling market, they probably won't get the same as you paid for it

The 2nd is your ability to pay and therefore the chances of you stopping paying
They look at the security of your job, your spending habits and your income
The 'stress test' just means 'if payments go up, can you still pay'
So if you are totally stretched at current interest rates, how will you pay if rates go up

And if you apply for a £300k mortgage on a 75% rate, but the valuation comes back to say it is only worth £375k, the will usually say "we will only lend you £280k to stay at 75% LTV" or they will say "we will lend you £300k but on our 80% LTV rate at a higher interest rate" so it doesn't mean the deal is dead in the water

Plus, you can go back to the vendor and negotiate on the price and hopefully pay less than £400k

thanks, that's helpful.

we have a 28% deposit, so interest rate on some mortgage products are really affordable for us, even if we fix for 5 years which is what we'd like to do. not much more than our current house monthly repayment.

sorry spare, so does lender have to agree its worth the price we had offer accepted, im confused again! talk about dense!

Spare change has pretty much covered everything. The only thing I have to add is the LTV is worked out on the purchase price or valuation - whichever is the lower. However, having worked as a mortgage underwriter for years, I can reassure you that with purchases, the property is nearly always valued at the purchase price because in the open market the value is the purchase price (because the value is what someone is willing to pay for it). The only issue would be if you were buying from a relative or friend and they were letting you have it cheap. In which case the LTV would be based on the purchase price even though the valuation is higher - the lender doesn't want to assume all the risk of lending all the money and the purchaser not putting any money in.

oh god, getting worried now, we were down to sealed bids as so much interest in property, we've gone over asking price by 17k and are funding that but going to max "in principle" offer figure. sorry, should have been clear.

ah, thanks for more replies, i think its slowly starting to make sense. i really cant recall a jot from when we ftb.