House Overvalued by Mortgage Company

[Bouncylion]

This is a mostly hypothetical situation but I’m hoping might have some knowledge to help decide our next move.

We’re currently involved in selling our current house and buying a larger house nearby. We’re selling to first time buyers but we’re buying our new house from a friend of ours through a private sale. The house is in a real state at the moment. Every wall needs to be stripped and re-plastered, every carpet needs to be replaced, new kitchen etc. It’s a larger house with lots of outside space so the potential for us is great and could possibly be a forever home. The sale was agreed privately between us and the seller and we agreed a price of £155,000. The house is empty and the seller doesn’t ‘need’ the money from the sale right now but they will need it in the future. They did have an estate agent come round who valued it between £150 and £160 but said it would be worth more in better condition.

During our searches our solicitor has found that a problem with the house that could mean the mortgage company won’t lend on it. We’re still waiting to hear back with their final decision. If they don’t lend we need to decide whether to break the chain, sell our house and move in with relatives until the issue with the house is resolved and then buy. Or we pull out of our sale now and go back on the market when the issue is resolved.

Now for the hypothetical part. Our seller is saying that if it does fall through they’d do the work to get the issues resolved but they’d also get the renovation work done (so the plastering, carpets etc) to help us out and to help us move in quicker. They only want to sell to us and are happy to keep the price at £155,000 despite the work being done (they’re good friends!).

My concern with this is that when we apply for a mortgage and the mortgage company come out to value the property they will question why a house in good condition is being sold to us below market value. Similar sized houses in good condition in the area sell for an average of £180,000 so it’s a big difference. £180,000 would be very top end of our budget and may be a stretch for us, going by the conversations we had with the mortgage company when we were applying with them originally.

Obviously Covid and the property market may change in the time it takes to this point but would a mortgage company have an issue with a house being valued above it’s sale price? I can find lots online about houses being undervalued but not much about overvaluations. I guess it maybe doesn’t happen that much?

I like the idea of the work in the house being done for us already but if it’s going to cause us an issue with being able to get the mortgage then it’s probably best they leave the house as it is.

If you mean a survey that the mortgage company arranges, it is unlikely to over-value as it looks purely at whether the house value would cover the amount you want to borrow on it - so say you were asking for a mortgage of 10K and the house was worth 20K, I'd have thought the report would simply say that it is worth the 10K mortgage value requested. It won't value the house in the way that you are thinking.

If you commission your own valuation report then that would be more likely to actually give the house's value.

Someone else may be along to explain that better shortly!

Our broker advised that the mortgage companies don’t usually provide a valuation over the offer price as that can lead to people trying to get a lower loan to value rate I.e. if you offer £100k on a house, with a £10k deposit you have a 90%LTV and an interest rate to reflect this, however if the mortgage valuation came out at £150k, then people may try to request a lower LTV and as such a lower interest rate

Thank you both, that’s great. Yes sorry, I did mean the survey that the mortgage company does.

Still not sure what we’re going to do but that’s really helpful to know. Fingers crossed it all goes through now and we don’t have to worry about it!

Our seller is saying that if it does fall through they’d do the work to get the issues resolved but they’d also get the renovation work done (so the plastering, carpets etc) to help us out and to help us move in quicker. They only want to sell to us and are happy to keep the price at £155,000 despite the work being done (they’re good friends!)

Don't do this, could you really live with them giving you about £25K.

Are they so altruistic that they'd never mention it every time they need a favour, every time they ask you to do something, every time your buying the house from them comes up in conversation.

For your own peace of mind and for the sake of your friendship, do not go down this route.