Key Post The impact of Covid-19 on house prices

This is interesting, not surprising perhaps. What are thoughts on banks giving mortgages if a valuer says house worth 10% less than purchase price if the LTV is low enough that it doesn't matter?

e.g. House agreed price €400k. Valuer per above article €360k. Mortgage application €200k.

Would the mortgage provide refuse to allow a purchaser pay "more than a house is worth", once their position is still safe?
 
Sarenco said:
House valuations already being reduced by 10% according to this report -

www.independent.ie

House valuations are being reduced by 10pc during the mortgage process due to Covid 19 according to brokers

Bank valuers have been putting valuations on some properties that are lower than agreed sale prices in recent days, according to mortgage brokers.
www.independent.ie www.independent.ie
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I don't have access to the premium article but similar to podgerodge's reply above I'm interested in knowing this too.

Our situation;
  • FTB, HTB, 70% LTV, new build, initial valuation at price X, loan offer & contracts signed last year
  • Snagger did initial inspection the day before lockdown. Waiting for construction lockdown to be lifted so developer can address snags, bank can do final evaluation, solicitor paperwork etc so we can close.
  • Wouldn't be surprised if the bank's final evaluation is less than the agreed/contracted price, be it by 10% or even 20%.
If the bank final evaluation is less than the original evaluation & contracted price what will it mean for us? E.g;
Is the developer entitled to;
A. Refute the bank's final evaluation based on the fact that no records are available of other similar houses having sold recently in the area for that price (lockdown = limited to no sales)?​
B. Demand that the current contract be adhered to? i.e. effectively forcing our hand & telling us to 'take it or leave it' at the higher price or they'll sell it to someone else?​

Is the bank entitled to;
A. Refuse to give us any mortgage if we try to proceed with the original higher agreed/contracted sale price & their final evaluation is lower than that?​

I assume we'd also then need to resubmit our HTB claim to Revenue from scratch with the new figures.

I'm wondering do we need to be more proactive here in some way with our solicitor or is it completely out of our hands until the construction lockdown is lifted & we get the final evaluation from the bank & take it from there? I imagine the latter.

PS: I'm shamelessly open to any generous AAM user DM-ing me a copy of the Indo article ;)
 
It's a very brief piece built around a single quote from Michael Dowling of Dowling Financial :

There are instances we have seen where people have agreed a price and then the bank's valuer has gone out in the past week or 10 days where they can get access - because they can still get access to some properties - but the valuations are coming in at less than what the agreed purchase prices were
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georgeJ6 said:
Is the developer entitled to;
A. Refute the bank's final evaluation...(snip)
B. Demand that the current contract be adhered to?
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The bank's valuation is for their own purposes only, to ensure there is sufficient value in the property to protect their interests. A bank's valuation will have no influence on the developer. You mention current contract, have both parties signed contracts? Did you insert a 'subject to finaince' clase?

georgeJ6 said:
Is the bank entitled to;
A. Refuse to give us any mortgage if we try to proceed with the original higher agreed/contracted sale price & their final evaluation is lower than that?
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Yes, if the bank feel they don't have good security, they are perfectly entitled to refuse you funds.
 
I had asked this elsewhere as well. I think it's probably safe to say that, as Leo says, if their interests are protected you will be fine. So if a €400k house is valued only at €360k, but you are only borrowing €200k, it should not bother the bank. But if you are borrowing €365k.....
 
Leo said:
The bank's valuation is for their own purposes only, to ensure there is sufficient value in the property to protect their interests. A bank's valuation will have no influence on the developer. You mention current contract, have both parties signed contracts? Did you insert a 'subject to finaince' clase?

Yes, if the bank feel they don't have good security, they are perfectly entitled to refuse you funds.
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Thanks Leo.
Yes, both parties have signed the contracts. I'm double checking if we have a 'subject to finance' clause but I believe so. If we don't have the clause then I assume that the contract is legally enforceable even if we don't get finance (mortgage from the bank)?
 
georgeJ6 said:
If we don't have the clause then I assume that the contract is legally enforceable even if we don't get finance (mortgage from the bank)?
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Yes, without such a clause the developer could take an action to force you to close. If you don't have access to funds to do so, there may not be much for them to gain, but you could lose your deposit.

As above though, the bank will focus on their own interests, their role isn't to make sure you're getting a good deal.
 
podgerodge said:
I had asked this elsewhere as well. I think it's probably safe to say that, as Leo says, if their interests are protected you will be fine. So if a €400k house is valued only at €360k, but you are only borrowing €200k, it should not bother the bank. But if you are borrowing €365k.....
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Yes, that's a great summary.
 
I agree with podgerodge, valuation reports are not scientific, they use historic prices to gauge the valuation, and in my experience have served as a box check exercise.

On another note, I have a house for sale and a received an opportunistic advertisement through the letterbox from an 'ethical' property investor who could guarantee to purchase the house for cash in 6 weeks and would pay all my lawyer fees.
 
Thanks all for the replies. The current loan offer is based on 70% LTV. As it's highly unlikely that any final evaluation carried out within the next month or two would be for 30% less then as a rule of thumb we 'should' be ok as regards securing finance.

I guess the follow on question would be the reversal.....if the final evaluation is less than the contracted sale price do we have enough grounds on that alone to try to renegotiate sale price with the developer? Or in addition would we need sale price records of recently sold similar houses in the area as 'proof' of market value? If so that would mean risking losing the house as the only other similar houses in the area are those within the same estate as ours which are due to close in or around the same time as ours & their owners likely have the same predicament as us as regards guaging market value.
 
georgeJ6 said:
.if the final evaluation is less than the contracted sale price do we have enough grounds on that alone to try to renegotiate sale price with the developer?
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No, you've signed contracts, the negotiation should happen before that.
 
We went sale agreed pre-Corona. Has anyone successfully negotiated a reduced price in the last number of weeks? Interested to hear what kind of % movements are happening generally.

We have not signed contracts and are not in a chain. Buying from a receiver, but so far they are only agreeing to a small reduction less than 5% which we don't think is near enough. We like the house but it needs a complete renovation to make it liveable.
 
Robbie R said:
We went sale agreed pre-Corona. Has anyone successfully negotiated a reduced price in the last number of weeks? Interested to hear what kind of % movements are happening generally.

We have not signed contracts and are not in a chain. Buying from a receiver, but so far they are only agreeing to a small reduction less than 5% which we don't think is near enough. We like the house but it needs a complete renovation to make it liveable.
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Hi, we also went sale agreed pre-Corona
They agreed to a small reduction, smaller than yours, and we decided to go ahead with it.
Our thinking:
- we are FTB currently renting. If we sit and wait, say 1 year, the extra money paid in rent could negate any potential savings made
- we really like the location and there is little supply of good properties there, would rather not let this one go
- the house does not need renovation
- we see it as potentially our forever home, so a difference of a few thousand does not make a huge difference in the long term

However, if we were just trading up, and we were not paying rent, maybe we would look for a bigger discount, or wait and see.
 
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Robbie R said:
We went sale agreed pre-Corona. Has anyone successfully negotiated a reduced price in the last number of weeks? Interested to hear what kind of % movements are happening generally.

We have not signed contracts and are not in a chain. Buying from a receiver, but so far they are only agreeing to a small reduction less than 5% which we don't think is near enough. We like the house but it needs a complete renovation to make it liveable.
Click to expand...

I imagine there is not going to be a one fits all percentage at the minute. In my situation, I am selling but under no financial pressure to and thus will not settle for low bids at the minute, that may change in the future. There are a lot of variables it could depend on, in your case the receiver may have more wiggle room than a private buyer, or they could be in no pressure to sell and just refuse to budge.

So you need to look at it in the context of your personal situation, plans for the house and properties in the area.
 
JSnowWinterfell said:
in your case the receiver may have more wiggle room than a private buyer
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Possibly but a receiver has a duty to exercise all reasonable care to obtain the best price reasonably obtainable for the property.

Personally, I wouldn't proceed without a 10% reduction from a price that was agreed pre-pandemic.
 
In a similar situation, went sale agreed before lockdown and also yet to sign contracts (still waiting on the bank to carry out a valuation, hopefully once restrictions ease). Very much like the house but will be looking to agree a reduction in order to go ahead. The vendors are trading up and also yet to sign for their purchase, so would assume they may be looking for a price cut on their purchase.
 
Bilbo1 said:
Hi, we also went sale agreed pre-Corona
They agreed to a small reduction, smaller than yours, and we decided to go ahead with it.
Our thinking:
- we are FTB currently renting. If we sit and wait, say 1 year, the extra money paid in rent could negate any potential savings made
- we really like the location and there is little supply of good properties there, would rather not let this one go
- the house does not need renovation
- we see it as potentially our forever home, so a difference of a few thousand does not make a huge difference in the long term

However, if we were just trading up, and we were not paying rent, maybe we would look for a bigger discount, or wait and see.
Click to expand...

Bilbo, may I ask, what approach did you take to agreeing the reduction on your sale?
 
jackm14 said:
Bilbo, may I ask, what approach did you take to agreeing the reduction on your sale?
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Jackm, the owner had agreed to do a few small repairs before the sale. With the lockdown this was impossible. We agreed on a reduction instead and to buy it as is.
It still is over the previous offer, because we wanted to avoid the seller to go back to previous bidders.
If you are all ready to go, you could offer them a quick sale now in return for a reduction... Depending of the situation they may want to get rid of it soon
 
FWIW, I was talking to a pal yesterday that went sale agreed on a property before the pandemic struck.

He sought a reduction of around 10% on the originally agreed price but an under bidder has come back into play and made a counter offer.

At the moment, it looks like the revised price will settle at around 5% below the originally agreed price.
 
JSnowWinterfell said:
Is there a logic to how you arrived at 10%? This where I struggle on how we can value the appropriate reduction given the uncertainty unless we just say the uncertainty equals 10%.
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As someone in the market to trade up, I've been reading a lot of commentary in this space. At this point, with little or no transaction volume, I think everyone is just guessing at the current level of impact. However it seems bank valuers have put the impact at 10%, anecdotal reports suggest they have revised their criteria and adjusted their valuations down by that amount at this time.

As the situation evolves over time and we start to see the longer term impact on the economy, and banks' appetites to take on customers working in certain industries that might suffer more than others in the medium to longer term.
 
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