FTB with offer accepted - pull out or reduce offer?

[ks999]

We are FTB and had an offer accepted on a house in east London for £750k right before the lock-down began. We are getting a full building survey done tomorrow and our mortgage provider only needs to conduct the lender's valuation. The sellers are downsizing to another property in the area. They bought the house for just over £200k in the mid-2000s.

We're very concerned about the possible decrease in house prices due to Covid-19 and were thinking about reducing our offer to £700k (potentially less if the building survey comes back with major issues) - this seems fair to us as most forecasts are predicting a house price decrease of between 5% to 20%! However, this is a big reduction and may be unlikely to be accepted - so we are wondering if it would be better to simply pull out at this stage.

With an LTV like that OP I definitely wouldn't risk it. That deposit alone could be wiped off by the summer. Don't do it.

Agree with those who have posted since your update... as you are borrowing 90%, I would pull out.

Pull out. A 10% drop sustained drop in prices (i.e, no recovery at time of remortgage/sell) could ruin you financially.

I remember the 2008 crisis and the subsequent years. 90% LTV rates were hard to come by. And when you did, rates were 4%+. 90% rates now are sub 2.5%.

If you had to remortgage at 90% LTV within the next 2 years, you might find yourself paying an extra £500 in interest per month.....and that's best case scenario assuming you wouldn't be in negative equity....

www.google.com/amp/s/amp.theguardian.com/business/2020/apr/14/uk-economy-could-shrink-by-35-with-2m-job-losses-warns-obr

Economy shrinking by 35% in the short term will impact house prices. If you negotiated a 10% discount your LTV ratio would be much healthier / safer.

The Evening Standard piece that I linked to earlier is predicting more property on the market due to the impact of COVID - deaths, divorce and debt. The other traditional “D” of reasons for house sales downsizing - may well hold back.

What happens when the house market crashes is that London makes up quite quickly.
The rest of the country sales slow as people in negative equity stay put.There is a reason lots of DIY programs arrived at once in the 90s.
If interest rates rise you could be in difficulty paying you mortgage.

Not sure how divorce increases the housing market as you have a family occupying one house living in two.

I would think very carefully indeed about all scenarios and would be extremely unlikely to buy at that price with 10% deposit at this point. You could find yourself in negative equity almost immediately after completion. You say your job is safe but that’s not a complete guarantee-as we have seen in recent works, the unimaginable can occur. The worst case scenario is you find yourself in horrific negative equity and unable to pay the mortgage. For the sake of waiting six months to see how things pan out...well to me it’s a no brainier. You’re in a strong position if you’re a Ftb and not that bothered about this particular house. I would absolutely pull out.

Hagisonthehill yes divorce often means that larger family houses (which the OP is buying) are put on the market as both people need to downsize.

Thanks all! The LTV is definitely tight - it's pretty challenging for us to materially improve this as FTB, particularly with £30k going towards SDLT. Thankfully we are going for a five-year fix, so there shouldn't be any immediate affordability concerns as long as we're both employed. I'm a solicitor and my partner is an accountant, so both relatively stable professions at least in ordinary times.

Definitely a lot of food for thought, and I'm happy to hear that the consensus is that asking for a discount in these circumstances is not unreasonable!

Considering the LTV, you certainly need to reflect on what is best for you and what risks you wish to take. You say the house is not particularly unique..

The vendors might have already downsized in price if the house value is dropping. However, as they paid 200,000 for it, they will be 400,000 up even if it drops to 600,000. It would not cost them to stay. Quite the opposite. They may want to release some of their cash, though.

Conversely, if you pay 750,000 and it drops to 600,000, you would be in debt and paying a premium for that difference. You would be out of pocket in a way they wouldn't. I plucked those figures out of thin air for an example!!! No crystal ball here.

You have to do what you think it best for you. You don't owe a chain anything. These are extraordinary circumstances.

If their house appreciated in value by 550K in less han 15yrs, I bet they will gladly accept less (700 or even under) as nowhere else could they get such a profit in those years and they didn not expect it to rise that much, I'm sure. In current circs they KNOW ifthey lose you, they'll spend a lot of time looking for another buyer who can offer 750 - it's just not going to happen with a house that needs a lot of modernising, no chance.
Be confident that if you offer less, they'd still be very happy, it's my opinion but I bet they will be.

If it has almost quadrupled in Value in around 15 years then it is very likely to loose quite a bit of its value during the downturn. If you are in secure jobs and are happy to pay that price then go for it. It. Is very likely your deposit will get wiped away into negative equity if it is 10% or less though.

It's a business decision that will affect your future - do you want to be stuck in negative equity for years kicking yourself for buying at the top of a peak? You don't owe anyone in the chain anything, it's your life. I would pull out because all the indicators are showing a steep drop is coming.

I'd pull out too. Although you might have to wait ages until the market settles and becomes clearer, you will have a better chance of avoiding huge losses - it really isn't worth the risk when you have such a high LTV.

You could offer a lower price....but anything will be a guess about how much prices will drop. We just don't know. And most sellers will probably be resistant to accepting a significantly lower offer, even though that is realistically all they will get at the moment. They probably need some time to get their heads round the fact their property is almost overnight worth significantly less, or will be in a very short time. Over time, they will adjust to this. Some will be able to hold out for prices to rise again and some will have to sell at far less than they would have hoped....but most won't sell at far less immediately, because a bit of time is needed for the mental adjustment.

Good luck! It really is a gamble right now. In basic terms if your not that bothered about the house go for the reduced offer and expect a no. If you really want the house it will be a negotiation and possibly a pissed off seller.
I'm not in London I'm selling my house for 180,000 and if my buyer (who are ftb) wanted a reduction for 'what may happen' I would have to decline unless my seller would offer a reduction aswell. You house is a hell of a lot more expensive so I get that you are hasty about spending that much!
From another angle who knows what would be offered by the banks in the future is it safer now as you have your mortgage offer? I'm not economist lol

I agree that is a very tight LTV and would probably make me walk away in the current climate unless I really wanted the house. I agree the agents will not be surprised.

A couple of things to think about - when you say East London, is it a type of house and in an area which is always sought after (for example, the Georgian houses in Bethnal Green or the Victorian houses by Victoria Park)? I'd feel a lot more confident about the value of one of those long-term than, say, a standard terrace in Leyton or Plaistow.

How does the mortgage compare to the rent you are paying now? Will you be making a saving?

How long do you plan to live there? If it is more than seven years I'd buy it. If it is an interim house for you I wouldn't, especially with the current rates of stamp duty.

I'm a solicitor and reading the legal press on a daily basis and seeing even the magic circle firms furloughing people. My firm (based in the city) has furloughed 170 people already and that is probably just the start. My area of law should be okay but who knows. I'm glad I'm on a fixed rate at the moment although nervous about what our options will be when the fixed rate ends. At the start of this, I honestly thought my job was secure but I don't any longer.

Personally, with a LTV ratio of 90%, I probably would wait to buy. We now have about 30% equity and I'm concerned we will lose most of that. However, if I was selling, I wouldn't accept a reduced offer now, I'd sit and wait it out and see what happens. It would be the LTV ratio that worries me. Any drop in prices will only be of benefit.

I've read somewhere that housing developers are pushing for a freeze on stamp duty once this is over. Whether it happens or not who knows but that'll save you a decent amount of money.

At that LTV then I’d definitely either try to negotiate a much lower price or withdraw. Your deposit could disappear within months and prices may not revert for years.