Want to drop your offer but worried the change in loan-to-value will affect your mortgage? Here we explain what action to take.
Once you've found the home of your dreams, the next steps in the Move journey include getting your offer accepted, confirming the mortgage and instructing a conveyancer or solicitor to advise on the legal process.
It's a good idea to book in a survey to provide an independent account of the property’s condition. The survey will highlight issues that may affect the value of the property, such as defective wiring or problems with the roof. Serious issues could include Japanese Knotweed, subsidence, rot and damp.
RICS offers three types of survey:
1. Home Condition Report. The cheapest and most basic. It’s suitable for newer homes and those in a generally good state of repair. The Home Condition Report uses a rating system. 'Green’ means things can be readily cared for under normal maintenance, ‘orange’ means investigations may be advised – while ‘red’ means serious or urgent repairs are needed.
2. HomeBuyer Report. The middle-of-the-road option and costs more. This survey is suitable for most modern homes as well as older properties that are in a reasonable condition.
3. Building Survey. The most expensive and comprehensive survey. It will provide more details about the defects, and offer advice on the next steps you should take. It is recommended for large, unusual, old, listed or dilapidated homes.
What if your survey reveals problems?
If your survey does highlight any defects, stay calm and be clear about what steps to take next.
Your options include:
- Accept the problems and proceed at the agreed price
- Ask the seller to fix the problem before completion
- Try and renegotiate the price
- Pull out of the purchase altogether
If your survey shows defects, you may want to renegotiate. But what does that mean for your mortgage?
Renegotiate your offer
If you don’t want to pull out of the transaction, you may want to think about negotiating the asking price down to account for the cost of fixing the problem yourself.
For example, if it’s going to cost £2,000 to deal with the damp problem, lower your offer by the same amount.
You may need to provide a selection of quotes for the proposed work. But if all goes to plan, the seller will agree to knock the cost off the asking price.
What does this mean for your mortgage offer?
Talk to your lender if you do renegotiate the price, because the change may affect your formal mortgage offer. The lender will re-do the application based on the property’s reduced value.
If you don’t update your lender, the property effectively costs you less, but you are still asking to borrow the same amount. This changes the terms of the agreed contract.
The time it takes to provide an amended offer will depend on the lender. It could be a same-day turnaround, but may take as long as a week.
Thankfully - unless there has been a significant time lag from the initial mortgage offer - it won’t require a new application form or credit search and it is unlikely to require any additional verification from the borrower.
You also shouldn’t need to go through the mortgage affordability tests again as the amount you want to borrow is not increasing.
Peter Muglestone, managing director of Online Mortgage Advisor, says: “Getting the seller to agree to knock a few thousand off the asking price shouldn’t cause the loan-to-value to go over 90% and collapse the sale.
“For example, if the buyer had agreed a purchase price of £100,000 with a £90,000 mortgage, the buyer needs a £10,000 deposit.
“If the seller agrees to reduce the purchase price by £2,000, the mortgage amount also needs adjusting to 90% of £98,000 – which is £88,200.
“The buyer would then need a slightly smaller deposit of £9,800.
“The broker or lender should always look to adjust the loan figures to match the lower valuation. In my 10-plus years of experience, lenders have always been fine so long as the LTV is maintained becasue they are lending a lesser amount.”
Adrian Anderson, director of broker, Anderson Harris, says: “From a legal perspective, any reduction or consideration in regard to the asking price must be formalised as part of the contract and the lender notified. The loan will then be assessed on the reduced price/value.
“Any amendment to the offer should be straightforward, but lenders vary massively in regard to turnaround times. Some could take an hour, others may take a week.”
How do you find the right mortgage deal?
Check you're getting the cheapest one by comparing deals and calculating the monthly cost or by talking to a fee-free mortgage broker. You can compare thousands of mortgages for first time buyers, moving home or remortgaging with Zoopla's partner money.co.uk
What if the seller offers cash-in-hand?
You need to be wary if the seller offers you cash to cover the cost of any problems or defects.
The same applies if the seller offers a deal whereby they simply give something away - lawnmowers and garden equipment being typical examples.
Adrian Anderson, director of broker, Anderson Harris, says: “The seller should not offer the buyer cash-in-hand as any purchase is subject to the contract and needs to be done properly.
“The seller could do this without advising the agent, solicitors and the lender, but such situations come without protection of law and technically, should be advised to solicitors and the lender. The solicitors have an obligation to advise the lender of such matters.”
Strike a compromise
If you are struggling to persuade the seller to reduce the asking price to cover the cost of work, you may consider a compromise and accept less of a reduction.
This may appease a seller who doesn’t want to feel they are bearing the entire cost of fixing a perceived problem they have lived with for years.
Sometimes it is not even about the money, but a point of principle, so if you can put emotion to one side and think pragmatically, you will be better placed to make the best decision.