Monday, 22 June 2020

"Can you get a mortgage on a house being sold below market value?"

Mike W spotted a rather strange Q&A in The Guardian, and added "If I make an offer and you accept, I always assumed that was 'market value'. Indeed, 'marked to market' surely? What the hell do they mean here?"

The mortgage adviser replies: "However, not all lenders are prepared to lend to people buying property at less than market value."

Which really is baffling. You'd expect lenders to be paranoid about lending on homes bought for more than market value, but not the other way round.
On the subject of "below market value", I was chatting to somebody who lives up the road who nearly got a massive sitting tenant's discount when they bought the house they had been renting for four years. Unfortunately, the owner's ex-wife got wind of what they'd shaken hands on and slashed the sitting tenant's discount by about half (they still got a fairly good deal).

I told him that we got the full sitting tenant's discount, we'd been paying rent for six years, and the owners wanted to sell. To my amazement, they accepted our cheeky offer, which was effectively the easily achievable selling price* minus five or six years' rent.

* If they'd put in another £10,000 or £20,000 to smarten the whole house and garden up a bit (all the stuff we've been doing ourselves for the last six years), they could have sold it for a lot more than that, but (thankfully) they couldn't be bothered.


L fairfax said...

Maybe if properties in area x go for £y and someone pays £y - 40%.
Lenders think that either a) the property has something seriously wrong with it (subsidence) or b) the deal has something criminal about it - maybe threatening or something and so are worried about the deal blowing up?
That is just a guess.

Mark Wadsworth said...

LF, good points. I'd thought about subsidence, in which case bank can just ask for a report. I'd not thought about people being bullied into selling at undervalue.

L fairfax said...

It could be something else - i.e selling to family to avoid inheritance tax - and then if they die less than 7 years later you have to pay inheritance tax etc. Which would be a lot to find suddenly.
Maybe some other criminal transaction.

Lola said...

I do not agree with that 'mortgage adviser'. And it's probable that the journo writing up the piece got it wrong.

Some lender somewhere will usually always lend on a low LTV. Why wouldn't they? Great security. And they will always carry out a survey to check the property.

And it is The Gruniad....

Bayard said...

If you are buying a house for less than its market value, there has to be a reason why you are not paying market value and, as LF points out, that reason could come back and bite you, valuewise, later on. Also, most financial organisations are very quick to put things in the TFD file if they are even slightly out of the ordinary. Why spend lots of time sorting out the unusual when you can make plenty of money dealing with the run-of-the-mill?

Lola said...

B That's where skilled mortgage brokers come in. You need to be able to package up the case in the right way for the right lender. Most people do not know how to do this. I don't do mortgage work any more, personally, but my business does. We know how to make the right 'story'. It's surprising really. But that's how it is.

Mark Wadsworth said...

LF, B, L, that all seems persuasive but your suggestions seem to cancel each other out. If suppose it helps if you TELL the bank why it's at undervalue. Probably entirely innocent in 9 cases out of 10.

Lola said...

Yes, exactly. You tell the bank and why. Trouble is they need telling in a way that suits their 'process'. There's not a lot of real lending expertise these days.d

Anomalous Cowshed said...

The actual reply given starts with;

"A No it’s not true. According to Pete Mugleston of, it is perfectly possible to get a mortgage on a property sold at below market value. He says: “There is an urban myth that to purchase (or sell) a property well below its actual worth may be unethical – or even illegal – in some way. But buying a house well below market value, with or without a mortgage, is generally a perfectly acceptable practice.”

At a guess, depending on how apparently low the price actually is, a lender might be concerned about some form of charge/lien on the property, affecting the title - they really don't want to end up second in line.

Plus what Lola said.