Saturday, Jun 28, 2008
The deleveraging of the UK housing market
Times: Homes hit as lenders slash values
Down valuations are putting further pressure on sellers who have already had to knock hundreds of thousands of pounds off asking prices. YEESSSSS. Tony Grounds, 50, a writer, first put his home at Broxbourne, Hertfordshire, on the market for £2.4m six months ago but was forced to lower the price to £2m. He later approached estate agents Knight Frank who recommended he drop the asking price to £1.795m a few days ago.
Posted by confused76 @ 11:22 PM (552 views) Add Comment
4 Comments
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1. mken said...
"The down-valuation trap could also be a problem for buyers who have already secured a mortgage deal. Ray Boulger of broker Charcol said: “When a property is down valued it may seem like good news for buyers as they can get money off the property, but it may also push up the amount they are borrowing relative to the value of the property."
“If they have already secured a mortgage, this could mean having to put up a bigger deposit or paying a higher rate.”
This could be a key development.
As the crash continues, will people automatically have to renegotiate their mortgages due to changed LTV (80% becomes 125% etc.)?
(because of disappearing 125% and 100% deals etc. many will find it impossible to do so).
Can anyone confirm whether mortgages need to be renegotiated in this way in the UK - and if so at what stage?
2. renting2 said...
No understanding this. If valuation comes back less than offer, then the buyer goes back to the seller and says we're gonna have to pay less, once new price sorted they go back to the lender and, putting down same deposit as before, have a lower loan to value (deposit now a larger proportion of total cost). They could actually put down lower deposit to maintain Loan To Value so keeping some cash for themselves (also less stamp duty). The only problem is that the seller may not want to drop to the valuation level, then the buyer will have to decide on whether to pay more than the valuation (only an idiot would of course!). All this happens at a late stage in the purchase process, but importantly before exchange of contracts, and is, I suppose, a sort of surveyor authorised guzundering.
Big point to note is that everyone in the chain benefits except the poor guy at the top who is not buying (usually death, debt or divorce/separation).
3. inbreda said...
mken - yes the mortgage would need renogotiating
renting2 - yes it is good for the buyer as, once renegotiated their LTV effectively decreases.
"and is, I suppose, a sort of surveyor authorised guzundering." Yup. All mortgage companies have their own valuers (or contracted) to make sure they are not lending a higher LTV than the applicant claims. They will now have an interest in being conservative. If a property is going to be incorrectly valued (subjective, I know) then it is nowe going to be undervalued, whereas previously it was overvalued. So sellers should be getting phonecalls from buyers saying " I know you think your house is worth 500k, and I asked the bank for 450k because I have a 50k deposit, but the bank said they won't lend me the money because they think the house is only worth 400k, so that's the best offer I can make"
4. mark wadsworth said...
Nice one, Inbreda!!!
How is the seller to know what the bank said? It is the perfect negotiating tactic!