Mortgage question

Hi everyone, I'm having a disagreement with a friend about mortgages. They have been offered a house worth £200,000 for a purchase price of £150,000 (I'm not 100% sure of the exact details, something along the lines of right to buy I believe though). They think they need to save up a large deposit for a mortgage, I think that a mortgage company would count this situation as needing a 75% mortgage so no additional cash deposit would be required.
Anyone got any advice about this?
Thanks.
Reply to
Simon Finnigan

Nope. The mortgage company will require you to provide a XX% deposit of either the valuation or the actual purchase price - whichever is the *lower*.
Any attempt to pretend that the valuation is the purchase price and the difference is the deposit is "mortgage fraud" (I'm sure that you have heard of that and I would guess that you thought it something more substantial than this - but it isn't!)
tim
Reply to
tim....

This doesn't seem right - AIUI a deposit is basically to protect the mortgage company in the event of having to repossess the property. Having a bigger deposit means the company is more likely to be able to sell it at a price to cover the remaining mortgage, making it less risky and thus giving a lower interest rate (sometimes at least).
If a house is worth £200,000, but has been sold for £150,000 then the mortgage company could sell the house at a 25% discount to the real value and still break even on the mortgage remaining, making it a fairly safe mortgage in terms of the bank not being able to retrieve their money in the worst case scenario.
I've just had a letter from my mortgage company telling me of a change in interest rates - despite only having paid a few thousand off my mortgage, which I got without any deposit, I am being dealt with as if I have a 70% mortgage - I still owe someone else the remaining funds for the house, but that isn't the mortgage, is registered as a second charge on the property but as far as the mortgage company are concerned the mortgage I have from them is 70%. I've never given them a deposit, nor have I paid off more than a small fraction of the original sum loaned to me.
Reply to
Simon Finnigan
wrote:
I would have thought they would rely more on the result of an independent valuation. However they may decide to use your formula since it would make them more profit ;-)
Reply to
Mark
This answer just seems wrong. A house valued at £200,000 being sold for £150,000 gives the mortgage company £50,000 difference in equity in the event of repossession.
Reply to
Simon Finnigan
wrote:
The value of something is the amount someone is willing to pay for it, in this case £150,000. There is no, set in stone, value for anything, especially houses. In the case of the mortgage company, they, or their valuer, will decide what they think it is worth and that is what they will base the deposit requirement on. It's their decision, take it or leave it.
If it really was worth £200,000, in the event of a forced sale any excess equity would go to the purchaser not the building society.
Reply to
Bill Taylor
wrote:
Yep. However the fact that the house actually sold for less may depress the valuation.
Minus all the "expenses" that the building society deduct.
Reply to
Mark
Yes, and when their valuation is £200,000 that would be the value, not the reduced price actually paid for it.
Which gives a good chance of the mortgage company getting their full stake easily, making it a low risk mortgage equivalent to having a substantial deposit.
Reply to
Simon Finnigan

These often come with restrictions on re-sale within a certain number of
years. That could mean that the mortgage company might only be able ot get back the £150,000, quickly.
Reply to
David Woolley
In message , Simon Finnigan wrote
Isn't the answer likely to be how much the purchase price of the house is above the income of the borrower rather than the difference in the valuations?
If the household income is £100k/year the lender may offer a 100% mortgage on £150k. If the household income is £30k the lender may only offer x3 that as a mortgage leaving the buyer to find a £60K as a deposit.
In the first 5 years of a right to buy deal some or all of the discount will have to be paid back if the property is sold (as a result of a loan non-payment) so for the purposes of a mortgage the property will not be worth £200,000. The "gotcha" in any early resale of this property is the discount to be paid back includes 25% of any increase in the value of the property.
Short term, the house is only "worth" £150,000 for lending purposes and the extra £50k of "value" can only be considered perhaps 3 to 5 years down line. The lender will be interested in protecting the loan amount in the higher risk first 3 to 5 years.
Reply to
Alan
In message , Simon Finnigan wrote
Wouldn't anyone selling the house in the early years first have to pay back the £50k discount under the terms of right to buy? The "buffer" of the £50k is not real for the purposes of a mortgage.
Reply to
Alan
,
But this would be a second charge at best against the house, allowing the mortgage company their full whack first leaving the council to chase up any other money owing from the house owner in the event of a shortcoming.
Reply to
Simon Finnigan
wrote:
I doubt it. The mortgagee is only interested in if they can get their money back in the event that the buyer cannot pay the mortgage.
Even if they earn enough money they still may default on the mortgage. For example if they lose their job.
Reply to
Mark

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