Mortgage/Valuation issue

[toshj]

Hi all - i was wondering whether anyone could advise on the following situation.

A friend and I had an offer accepted for a flat in London, however it all seems to be goinga bit pear-shaped.

Our accepted offer is at about £540,000, and our lender has just valued the property at £475,000 - as such, the lender will only give us a mortgage in line with this £475,000 valuation. Now we're really not too sure about what to do.

- the property isn't in the most upmarket location, and as such the valuer will base their valuation on local property prices (generally considerably lower than this place)

- I understand that the estate agents can now put together a case highlighting other properties that have sold at a similar amount in the area, however I have no faith in our estate agents and am quite sure they'll tell the vendor that we couldn't get a mortgage together and hope for a cash buyer or that a future valuation will prove more in line with the asking price.

- I also need to get this sorted fairly quickly as I'm pretty sure I'll only be able to get approved for a mortgage in the next few weeks. I work largely on a commission basis, which the lenders don't particularly like, and there's talk of this being switched to receiving no commission, but a dividend payment instead - therefore making me look even less attractive I believe. Also, the guy I'm buying the place with is on £18,000 salary (his parents are paying his deposit)

I really like this property, and see that my only chance to get my foot on the ladder will need to be within the next month or so. Do you guys have any suggestions that will help me secure this place?

Any help will be greatly appreciated!

 

[toshj]

30% deposit, interest only and a friend renting out the third bedroom. its all financially sound from our perspective, but the valuation has just totally screwed us!

 

[toshj]

its in south east london, about 10 mins walk from london bridge, so fairly central. the area in general is going through a fair bit of modernisation with a few new blokes going up at the moment, plus there's development opportunities on either side of this property.

 

[toshj]

the estate agents are in the process of trying to find similarly priced properties, but given the state of the property market over the last couple of years and the location, I sincerely doubt they'll find anything to back up their case.

We're not really in the position to string anyone along at the moment, as all parties are aware of the situation. My initial thoughts are that if we pull out then any other buyer will come up against he same vauation issue, and therefore the vendor will have o drop his price but I'm not sure how likely that is.

 

[toshj]

Yeah, I've been told by our mortgage advisor that the lender is very unlikely to budge, however I wasn't sure whether this was a good thing or not? My feelings were that it would therefore force the vendor to lower his expectations, as most other valuations would come in at a similar level.

Are his parents giving 30% of the offer price as deposit or 30% of the value as deposit?

Either way the figure is £142,500 or £162,000, lucky lad!

Although you must have a pretty big salary surely to be able to a mortgage for circa £300,000

My friend and I are splitting the whole thing 50:50, therefore we're each paying 50% of the deposit, so this whole process has pretty much relied entirely on my credit rating.

 

[toshj]

Yeah, good luck with getting that mortgage. Your friend will be almost irrelevant in the scheme of the mortgage borrowing on a mortgage of that size with a very low income of £18K.

You would need to be very sure about the valuation a d the amount of debt you're taking on - ie - what happens if your friend renting the third bedroom changes his/her mind - it has to be affordable absent that and other outgoings etc.


Are you really comfortable in borrowing this money?

we're going interest only as it works out at £450 per month each, which is quite affordable to be honest. the whole issue is that its an unusual property:

its not in the nicest part of town (not the worst, but hasn't got the greatest reputation) but its a 1,400 sq ft 3 bedroom warehouse conversion with a large roof terrace looking out over the city. given the prices of things we've been lookin at over the last few months it seems to be right in the middle of the scale, so we were happy getting it just under asking price.

since this issue has come up, it has certainly made me question the value, however unless the vendor wants to hold out for a cash buyer, this ultimately works in our favour. the mortgage has been offered to us, so its just a case of resolving this mispricing issue

the guy i'm going 50% with has his mum as a guarantor, and i'm comfortable taking on the debt given my current situation. all in all its not a bad situation to be in, i just want to make sure we don't lose the property

 

[toshj]

sometimes when you want something a little too much you're willing to pay over the odds for it. could this be the case with you?
good luck tho

yeah, i totally agree - i'm somehat impulsive. So far we've made offers on two other properties within the same price range so that's never really been the issue. i think i was surprised by the result of the valuation. to be completely honest, both our mortgage advisor and the estate agent were massively shocked to have £75,000 whiped off the amount.

 

[toshj]

That makes a LOT more sense to me - the Guarantor as without this I couldn't understand how there was a chance in hell of getting the mortgage!

Good luck with everything

sorry - i've worded this wrong. she's his guarantor (read as: happy to bail him out shoul anything go wrong) should he hit any trouble paying his side of the mortgage, but the mortgage is being offered on the basis of his and my financial situations. does that make sense? not sure if it does! i'm confusing myself... i can't believe that someone as naive and gullable as me should be allowed to buy a property

naefeart - good point, but with the interest repayments as they are, my mate and i are capable of covering the hole amount. the additional person renting is just to lift some of the financial burden. that sid, i've never really found it difficult to attract renters so we should be able to fill his boots if he decides to jump ship!

 

[toshj]

i'm confused. based on the valuation our bank has agreed to lend to us.

as this is my first time buying, i'm totally happy to listen to suggestions/comments/abuse! however to pay £450 a month in London is surely not a bad thing? Like i said, please let me know if i'm being a total douche about all this and i'm shooting myself in the foot!

it might be wortt noting that the mortgage is fixed for 2 years, and i'm an ok financial situation.

 

[toshj]

the interest rates could double and on interest only your payments will double

the government anounced today that they want to stop interest only mortgages which could need you having to find capital payments too

your income is nowhere near enough

and your ban think you are paying £65k too much

for your own sake downscale your plans to a more realistic level

yeah i read about the fsa's plans this morning, however i thought that when the directives came into place it wouldn't affect interest only mortgages that were already in place.

i would have thought my income should cover it ok

the bank's valuation has indeed spooked me, however when i contacted a local surveyor his stance was that the average price for the area was at £4,200 per square metre, which would actually value the property at more than we're paying for it.

anyway, it'll be interesting to see what the estate agents say tomorrow!

 

[toshj]

it could easily affect you if you ever needed to change mortgage deal or supplier as these are effectively new borrowing

that' a very good point. so if the new policy came into place, that the FSA would have the power to force someone to change from an interest only mortgage onto a capital repayment one? surely this would result in a huge amount of people defaulting on their mortgages?

 

[toshj]

haha. i've never learnt anything by shouting at people.

i'm not too worried about my own financial situation with regards to this purchase - even if interest rates four fold i'd still be paying less than i am for the place i'm currently renting - i'm just going to need to make sure my mate's mum will cover him if it all falls apart.

a perfect situation (for me) would see the vendor dropping his expectations and letting us take it for the amount it was valued at, but I don't think that's too likely. if all goes well i'll post the photos of the place, so you can tell me how much of an idiot i've been! on a side note, it does have a table tennis table!

 

[toshj]

£540,000 for a flat? Must be in the centre or an SW postcode or something ..

Plan B:

Hampton is a bloody nice area and about 27 minutes from the centre by train (after a 10 minute walk).

Screw your flat, get this instead and spend 27 minutes reading the metro each day.

http://www.rightmove.co.uk/property-for-sale/property-26462407.html

spent 23 years in hampton, the plan is to not go back too soon!

 

[toshj]

No, the bank mess had nothing to do with Uk mortgages.

However 450 a month on 18k, is a hell of a lot, then bills ontop.

my mate is on £18,000, and thats £450 including bills - i just want confirmation from his mum that she'll cover him should he fail to pay. my salary is somewhat different. when i first rented a few years ago, I was on £17,500 and was paying £450 to live in a dive in fulham, so my mate should be able to cover himself quite comfortably.

footman - i'm never coming home!

 

[toshj]

I would see a solicitor and get some real agreement drawn up.

I assume and this is guess work, that mortgage is a bit like renting on a a single contract, they don't care who pays and doesn't. They will chase both of you for the money.

the agreement is currently being drawn up by a solicitor, but your point on who pay's is correct. it'll come out of one bank account, so we're both liable

 

[toshj]

Not really in London though - the young professional demographic working in London is somewhat different to elsewhere in the country - for a start there is absolutely no need to have a car which AFAIK is often the second highest commitment after mortgage/rent for most people - your transport costs are fixed at £100 a month with no unexpected repair bills, no insurance required etc. Also he has no family commitments either.

Plus, it is a flat-share and not living singly, so fixed bills like council tax, broadband, cable TV etc are all divided by a third - so his monthly outgoings will break down roughly as

Rent - £450
House Bills - £100
Transport - £100
Personal Bills - £100 (deliberately high, say mobile phone + gym membership)

Outgoing - £750, Income - £1,200 leaves £450 a month purely disposable income to spend on food and entertainment - £100 a week is plenty really.

That said, if interest rates rise then he's royally screwed

that's pretty much the plan. my friend has no car, cycles to work and is incredibly conservative when spending money - never spent more than £100 in one go - plus he's got savings. all he has is £20 phone bill, so you can add an extra £180 onto his disposable income. Also, by the end of the two years fixed, he'll be on about £25,000.

i walk to work and my company takes care of the phone bills, etc.

 

[toshj]

right, i'll point out a few things. The mortgage is interest only, as the additional funds we'd be pay in a capital repayment scheme would be better off invested in something else (my opinion). Although the mortgage is being undertaken in two people's names, the cost is being split between three people. one person current earns £18,000 a year (will be on £25,000 by the time the fixed term expires), the renter earns about £35,000 and then there's me. to retain a modicum of modesty i'm not going to mention how much I earn, but its a decent amount.

the mortgage offer is at £1200 a month, and therefore it'll cost £14,400 per year for three people to live in zone 1 in london - £4,800 per person per year. if interest rates double we would be paying £9,600 per year (£800 a month is still pretty good in London). my girlfriend earns £18,000 a year and is having to fork out £8,000 a year in rent to live in a pretty average place in SE London.

the main reason why we're taking this route is so that my friend will be able to get a foot on the property ladder. He doesn't earn much, but he'll always have someone to bail him out (mother) if it all goes wrong.

also, and i know how much people like to give aggressive advice on this forum, but it's impossible for you to decide whether this is a viable idea or not without knowing how much i get paid

 

[toshj]

So why post on here then!

because i initially posted a question as to how i should overcome the issue of the property being undervalued, and our mortgage lender only willing to offer us a mortgage on the value and not the asking/agreed sale price (as in, how should i approach the estate agents and/or vendor to comew to an agreemnt). i had no intention of asking anyone whether it was a good idea to buy this place, but everyone took it into their own hands to tell me i was an idiot

 

[toshj]

No, people like to give sensible advice aggressively

You can't afford to buy this property, give it up and rent. There's no shame in it.

like i said, i think its quite funny people saying i can't afford it. i'm very comfortably paying £2000 a month's rent at the moment!

 

[toshj]

No offence, but you are talking out of your arse. No-one 'very comfortably' pays £2000 a month in rent. By your own admission, your salary is likely to change in the immediate future, and you have no guarantee that it will even remain at the same level from what I can tell.

ah, sorry - i do take offence to that.

you're very correct by mentioning that there's no indication that my salary level will stay the same or is guaranteed. i'm actually cautiously optimistic it will improve over the next few years. look its probably best i leave it here. all i asked for was advice on how to approach the estate agent/vendor in order to secure the purchase.