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Mortgage Question

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  • Mortgage Question

    Hi,

    I am new to the mortgage environment and was wondering could someone explain to me if a mortgage for a property is based on the value of the property, say for arguments sake £150,000 or the actual price you get the mortgage for say £140,000?

    If you have an agreement in principle for £150,000, and a deposit of say 15%, and you get the property for £140,000 due to slow market, is the mortgage based on the £140,000?

    Thanks

  • #2
    Re: Mortgage Question

    Hi callum,

    If you have a mortgage agreed in principle with a lender then this tells you the maximum amount of loan you are able to raise (from that particular lender, some may offer more). This amount is in addition to any funds that you are able to put down yourself as your deposit.

    So, if you have a mortgage agreed of £150,000 and you have a deposit of £50,000 you can buy a property up to £200,000.

    If you have a mortgage agreed of £150,000 and your deposit is £450,000 then you can buy a property valued £600,000.

    If you have a mortgage agreed for £150,000 and the lender's criteria requires a 15% deposit then you must provide the deposit even if the purchase price is £150,000 or less. So, if you bought for £140,000 you would still need to put in 15% of the purchase price (£21,000) and the lender would provide you with a mortgage for the difference of £119,000 (£140,000 - £21,000) so you would not be able to borrow £150,000 in this instance as this would be in excess of the value of the security (the property).

    So in summary - You can buy a property which is valued up to the amount of your mortgage + your deposit, so long as the percentage of mortgage against the purchase price does not exceed the maximum allowed by the lender.

    Hopefully that makes some sense. Don't be shy to ask again if that's not clear enough for you.
    Last edited by IFA; 16-02-2012, 10:29 PM.
    ____________________________________________
    Property for sale in Torquay

    www.thomasdobner.co.uk

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    • #3
      Re: Mortgage Question

      IFA thank you for your response, appreciate it.

      Just to confirm, if a property has value of £150,000 but is sold for say £140,000 and a 10% deposit of £14,000 is put down, the mortgage payments would be based on the remaining £126,000?

      Is that correct? Sorry if this is awful basic stuff, but just trying to get my head round it all.

      I was thinking that no matter if the sale price was under the asking, the mortgage would be based on the value price of the property?
      Last edited by callum84; 17-02-2012, 08:57 AM.

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      • #4
        Re: Mortgage Question

        The property value is what the mortgage values it as - not the estate agents.

        So if the property is marketed at £150k and you buy for £140k, that is the property value and what your mortgage covers.

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        • #5
          Re: Mortgage Question

          You're right Callum, your mortgage payments are based on the amount you borrow from the bank (it would be pretty harsh if they charged you for borrowing £150,000 if you had only had £126,000 from them, even banks wouldn't get away with that one!).

          The value of the property from the lender's perspective is based on what you actually pay for it as that is deemed to be its value, not what the estate agent estimated it to be. Properties are very often advertised for prices above what they actually expect to get for them to allow for some negotiation. So your deposit needs to be related to your purchase price, not the asking price (unless they are the same amount).
          ____________________________________________
          Property for sale in Torquay

          www.thomasdobner.co.uk

          Comment


          • #6
            Re: Mortgage Question

            Thanks guys you have made it alot clearer now.

            I have seen a property and currently looking up mortgages and have one agreement in principle, the property has been on the market for over 6 months, the seller has said 'there hasnt been much interest' and 'the market is slow' so I am hopeful that we could get the property for lower than the asking (which is £155,000) but dont want to go in with an offer that would be classed as ridiculously low, but at same time get best deal. We also dont have a property to sell, which I think helps the process.

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