Borrowers face new hurdles

June 9, 2010

Buyers returning to the housing market and homeowners trying to remortgage face an increasingly complex maze of rules and criteria imposed by mortgage lenders.
However, brokers have warned that people buying or remortgaging face a series of hurdles when trying to secure a home loan because of lenders’ ultra- cautious approach to approving deals.
Borrowers are still frequently hit by damaging and inaccurate down valuations — when a lender decides that your property is worth less than you thought it was — reducing the amount you can borrow, pushing up the cost of your mortgage or leading to loan rejection. Builders complain that buyers of new-build properties, favoured by first-time buyers, are particularly likely to face a down valuation in the current market.
Buyers also face a growing blacklist of properties, areas and even developments that are shunned by lenders.
Surveyors have warned that it is difficult to produce accurate house price estimates when there are so little transactions in the market.
Lenders often carry out “desktop valuations”, using automatic valuation models that guess how much a borrower’s property is worth using house price data and transaction figures.
Buyers who want a new-build flat face the greatest likelihood that a mortgage lender will cut the estimated value of a prospective home. A number of lenders insist that valuations of new-build properties are based on the estimated value of the home on the secondhand market. Builders argue that this is difficult to estimate accurately, created uncertainty and confusion for buyers.
Down valuations can hit borrowers with higher mortgage costs or lead to a loan rejection. Someone who needs to take out a mortgage worth £75,000 to purchase a property costing £100,000 will apply for a deal with a loan-to-value ratio of 75 per cent. However, if a valuation suggests that the house is only worth £95,000, the mortgage exceeds the loan-to-value tier. A lender that will not offer loans with a loan-to-value ratio of more than 75 per cent on new-build properties may reject the application. Other lenders might force the borrower to take a loan with a higher maximum loan-to-value ratio, leading to higher monthly repayments.
Borrowers who suffer from a down valuation may be able to appeal and apply for a second opinion from another surveyor. Lenders that conduct desktop valuations, such as Halifax and Woolwich, will send a valuer to conduct an internal and external assessment of the property, although borrowers are expected to pay the bill themselves. It is also possible to submit supporting information that suggests the original valuation was inaccurate, such as evidence of sales in the same street or new-build developments in the past three months.

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