AIBU to be confused how it is possible to overpay for a house?

[tealsofas]

Just doing some musing… many posters on here have commented that people who bought a property in the last 12-18 months are likely to have overpaid. But - lenders do surveys and would surely not approve a mortgage based on a value that is too high? Because it’s exposing them to a greater level of risk?

So I suppose I’m wondering how it’s possible to overpay for a property given that lenders are strict in their surveys?

Are you kidding?

Not everyone had a mortgage on their property. Cash buyers pay what they please. For mortgages - lenders only care about recovering their loan, not any equity you may have put in.

everyone pays market price, that price varies month to month and year to year

My parents were buying in Weymouth (ended up somewhere totally different). They lost out on 6 houses which they offered asking price as cash buyers and then on the final house £25k over asking price… they didn’t get any as they were outbid, usually by someone from London who’d never seen the house. The one they offered £25k over on… the bid winner offered £100k over asking price! These were all cash buyers so I’m guessing no survey or they ignored the valuation.

it’s also a bit like 2007 - we bought at peak and for 5 years our house value was slightly in negative equity. All fine as we didn’t sell for 11 years and made £38k on the property. Current home was bought in 2017 and we’ve “made” £110k ish if we sold now. I’d expect that to reduce within the next 12 months but that’s just a guess. We’re not planning to move so it really doesn’t matter so long as people can afford their mortgages.

Same as PP we bought a house at a peak of prices a number of years ago. Only had to borrow 60% so mortgage company weren't bothered that we offered so much over to secure it. House prices fell the following year and if we'd had to sell in first 5 years we'd have got less then we paid. But we lived there for 8 years and sold it for a bit more then we paid

Generally if you have a larger deposit the bank doesn’t care what you paid for it. Banks were doing a lot of desktop valuing during covid. We had a 60% deposit and our offer was issued the day after we applied for the mortgage, I have no idea what the property was valued at.

Plus if they had valued it lower worst case was they might guess our LTV was worse and increased our rate. That’s not taking into account cash buyers etc who don’t have a mortgage.

Banks want to be sure they’ll get their money back. So if a property is worth £200k, and you’re getting a mortgage of £100k, they don’t really care whether you put in £100k or £150k in cash.

Our mortgage company valued our house as less than we paid for it when we bought it in 2010 but we put down a 50k deposit it didn't matter.
We had it valued last year as we remortgaged and it's now worth about 200k more than we paid.

No and I’m confused why you’d ask that.

Let’s say someone paid £400k for a house and had a 10% deposit. The bank valued it at 400k so surely they feel that’s an appropriate gamble for their money?

Yes, my musings are about those who bought with a mortgage and had a lender survey the property.

Well the banks look a lot closer at a 10% deposit.

People like to talk about over priced, under value, over pay etc etc

At the end of the day a house will sell for what someone is prepared to pay for it and therefore, that is its correct price. End of story, there is no market price as such, its not like a tin of beans on the shelf with a fixed price.

House prices are market driven (ie what people will pay for them). Lenders and surveyors base their decisions on this just like everyone else. How else do you suppose they are making lending decisions?

They only care that its likely worth £360k since that's all they are lending you. So you could've overpaid 10% for all they care. That's why the higher the deposit the smaller the interest on most mortgage offers too, if its higher interest they can claw back money quicker if the worst happens and you default.

Our house was 110,000, but the valuation came back at 105,000. So our mortgage was 90% of 105,000 but we put in the extra 5000 as well as we really wanted this house. Do you see now?

Some surveys for a mortgage are 1 minute inside and around the house. A minute looking at the neighbours homes and research on local house prices. It does not reveal any issues, damp, cracks arc but if the house is priced accurately for the area and type of build. If the house appears right that is all that is needed. With these types of mortgages you might have large repairs in a year's time. They are assessing the rough house value only. There is a wide range of surveys that need to be considered. Some are just value ones that the mortgage provider pays for and reveal nothing.

Sort of.

The bank needs to get back its money. So if you are buying a £400k house, and seek a mortgage of £360k, then the lender will be agreeing that the house should fetch at least its mortgage value. But your savings/equity could be wiped out, and I suspect that's what is meant by over payment here.

Also, if there is a significant fall in prices, then the owners can be left in negative equity (happened in the early 90s) when the property value falls to below the amount of mortgage, so even if you sell up, you are still left owing money to your lender. In those circumstances, your best bet is to wait it out, but sometimes a move/sale is unavoidable, and then it gets really tough

Supply and demand. Property prices can fall as well as rise. The bank hasn't lent all the money, just £360k of it. So even if house prices fall by 10% they still get their money back.

When it’s said someone overpaid, it’s based on a falling market. Prices look like they are falling or might already be doing so. A year or two earlier the house could have been a bargain because of a rising market. Prices are market driven. It’s all about shortages in the housing market and availability of loans and deposits.

You can pay whatever you like for a property- but you can only mortgage usually 90% of the value. We just bought a house valued at £240k, but paid £260k because it's a forever home for us and we really wanted it. We had to pay anything over 90% value in cash.

What people mean is the house prices were inflated the last 2 years and they will now drop fast and will leave those who bought with negative equity . Meaning your home is value less than you hat you owe the bank