Mortgage On Rics Valuation, Not Purchase Price

[Smog]

I've just seen a thread on another forum where some spiv is claiming they can buy properties from distressed sellers at a 15% discount to RICS valuation but still get a mortgage at the RICS valuation.

For example, house valued at £100k by RICS

Negotiate purchase at £85k

Get 75% mortgage for valuation - £75k

So, only need a deposit of £10k not £25k

Is this legal ? Sounds dodgy to me.

Not that I'd be mad enough to invest in this obviously.

[pepsi]

I've just seen a thread on another forum where some spiv is claiming they can buy properties from distressed sellers at a 15% discount to RICS valuation but still get a mortgage at the RICS valuation.

For example, house valued at £100k by RICS

Negotiate purchase at £85k

Get 75% mortgage for valuation - £75k

So, only need a deposit of £10k not £25k

Is this legal ? Sounds dodgy to me.

Not that I'd be mad enough to invest in this obviously.

You mean like... this?

[jonb]

I've just seen a thread on another forum where some spiv is claiming they can buy properties from distressed sellers at a 15% discount to RICS valuation but still get a mortgage at the RICS valuation.

For example, house valued at £100k by RICS

Negotiate purchase at £85k

Get 75% mortgage for valuation - £75k

So, only need a deposit of £10k not £25k

Is this legal ? Sounds dodgy to me.

Not that I'd be mad enough to invest in this obviously.

It is legal if the mortgage company are aware of the full facts and allow it. Usually they don't allow it, and they didn't allow it even pre 2007.

[Cicero]

It is legal if the mortgage company are aware of the full facts and allow it. Usually they don't allow it, and they didn't allow it even pre 2007.

That's right, and they don't.

[tomwatkins]

That's right, and they don't.

Since when does Open Market Value always have to be equal to the price paid? If a surveyor values at X and the mortgage company is happy to lend at that price then that's the end of it. If this, ipso facto, brings down the actual deposit, reduces the monthly premium or a combination of both is the bargain between the lender and the purchaser. A surveyor has to deal with many valuations, not just for purchase. Mortgage for insurance purposes is usually quite different for a variety of reasons.

Tom MRICS

[Smog]

I forgot to mention, it's for BTL too.

I can't believe any lender would have a deal like this.

[Cicero]

Since when does Open Market Value always have to be equal to the price paid? If a surveyor values at X and the mortgage company is happy to lend at that price then that's the end of it. If this, ipso facto, brings down the actual deposit, reduces the monthly premium or a combination of both is the bargain between the lender and the purchaser. A surveyor has to deal with many valuations, not just for purchase. Mortgage for insurance purposes is usually quite different for a variety of reasons.

Tom MRICS

True, but the lender's possession must be obtained in writing to the arrangement prior to completion.

In the past, too many conveyancers failed to do so, relying upon the assurance of the estate agent / financial adviser that "everthing is ok".

Must be a lot of conveyancers s****ing themselves now, in the face of retrospective file audits by the lenders!

Edited March 2, 2010 by urban commando

[Pent Up]

Is the mortgage value not based on the actual amount agreed to be paid?

[Cicero]

Is the mortgage value not based on the actual amount agreed to be paid?

No, only upon the market value of the property viz a viz comparable properties e.g. you decide to buy a four bedroomed detached house on a recently built estate for £200k. However, comparable properties on that estate may have sold for £190k. The lender's valuer would inevitably take note that other houses sold for less, and thus base his valuation of the £200k property in line with the broader market.

This means that the valuer would end up downgrading the value of the £200k property, in his valuation report. The lender would then adjust the amount of the mortgage loan offer accordingly.

Edited March 3, 2010 by urban commando

[RichB]

When I was looking end of last year I asked several mortgage companies about this - and they told me the price paid was irrelevant, only the valuation price was what they took for the v part of ltv - whether it was above or below the sale price.

[ader]

of course purchase price is ireelavent to the bank.

they lend what they want based on what they think it's worth. or that's how it used to work before securitisation anyhow.

say a house is on for and lender valued at 200k and the bank wants only to lend 90% ltv then they'll lend 180k.

if i can get the vendor to sell to me at 20% below the market value then I put up the 20k deposit and take out the mortgage and the surplus to my account post purchase is 20k

this is how the blm companies work. you don't think they buy with their own money all the time do you?

in effect it's no different to an owner mewing is it?

both end up with owner having equity in the property.

people buy and sell below market value for a variety of reasons

e.g. joe bloggs might sell one of his houses to his son for 50% of the market value cos he reckons there's a crash coming and the bank doesn't.

he'd need to be mindful of the CGT situation though.

just make sure your lender knows the facts and choose one that's happy with this situation and that the tax situation is legal.

lenders are flexible, with some it's possible to loan more than the property is worth for example if you put up other assets e.g. another property as further security.