Buying a house always comes down to one thing, money. Sometimes you need to offer over the asking price and sometimes you can get away with offering under. But how does all of this affect your mortgage?
What Is A Home Report?
In Scotland we are in the fortunate position of having the Home Report: a 50-something page document detailing all aspects of the property from the energy rating to the survey to the utility suppliers. Perhaps most importantly, the report contains the property value as decided by a Chartered Surveyor. This allows you to see all the flaws of your prospective new home in black and white along with its true value before you decide if you wish to proceed any further. This is in contrast to the English system where the surveys are carried out after an offer has been agreed.
That being said, a property is only worth what someone is willing to pay for it, so what happens if this isn’t the same as the value?
Paying Over The Value
In recent years we have seen a huge demand for property with multiple buyers chasing after each listing and outbidding each other wherever they can. If you win the bidding war, fantastic! However, there are, as always, a few points to note.
Firstly, from a mortgage point of view you can offer over the Home Report value if you wish but the maximum your mortgage will be based on is the Home Report value, anything extra you need to fund yourself. That means if you are buying a property valued at £100,000 with a deposit of £5,000 and you have offered £110,000 you will need to pay a total of £15,000 upfront. Any Land and Buildings Tax will also be based on the purchase price, not the property value.
Secondly, you need to consider if you are planning to move again and if you will make this money back. If you do offer an extra £10,000 and don’t sell the property for 20 years you can be fairly certain you will make the money back. However, if you offer an extra £50,000 and look to sell the property 2 years down the line it is highly unlikely the market will have grown enough for you to make your money back in that timeframe.
Paying Under The Value
Offering under the Home Report value can bring its own set of problems when buying with a mortgage. If you manage to get a property slightly under the value, generally speaking, you won’t have any problems. If the property has been sitting on the market for a while and your offer is accepted significantly under the value, lenders tend to start asking questions. Why has the property taken so long to sell? Why would the vendor accept an offer that was so low? Even so, you might wonder what this has to do with your lender. It all comes down to risk and if you default on your mortgage it’s a case of how easily your lender will be able to sell the property to recoup the cost. For most lenders though, as long as you are within 10% of the property value it shouldn’t cause too many problems.