[Phascogale]

This is hypothetical.

You want to buy a house that you are willing to pay $500K for but the bank only values it at $450K. You only require $150K from the bank. Will the bank still give you the mortgage you want? Or will they say it's overpriced and say no? Their interest is covered because of the small mortgage if you need to sell.

Just curious.

[Bluenomi]

Generally banks will only lend you what they value the house at minus the deposit they require. So if they value a house at $450k but require a 10% deposit, they will only lend you $405k. Generally it is a bad idea to pay more for a house than the bank values it at.

[BetteBoop]

Yes, you'll still get a loan.

They're only concerned with what happens to their money if you default on your loan.

Provided they can sell the house and recoup the money they've loaned you (plus all costs associated with doing this) then they're okay.

[Peppery]

Yes, if you happen to default they would still be able to recover the money you owe.

[Bacongirl]

Generally banks will only lend you what they value the house at minus the deposit they require. So if they value a house at $450k but require a 10% deposit, they will only lend you $405k. Generally it is a bad idea to pay more for a house than the bank values it at.

I don't think this is the case any longer. Banks are being very conservative in their valuations and the valuations can vary widely between lenders.

When we looked at re-financing last year, we had one bank value our property $150,000 less than our current bank, yet the independent valuer valued it at $100,000 over our current bank's valuation. so a variance of $250,000....

Yet based on current sales in our area, the independent valuer is closer.

[Phascogale]

I wouldn't want to pay anymore for a house than what it was worth (and would hopefully pay less and get good value). Personally I would always look at a house as an investment and regardless of how much I loved it, I wouldn't spend more than I thought it was worth.

I had heard that banks were reluctant to give you a mortgage (even with a healthy deposit) if they feel that you are overpaying for the house. Hence my question.

It was more of whether a bank would be a safety net to help prevent you paying too much for a property.

[SlowEmotionRepla...]

Why don't you use the banks valuation to try and negotiate a better price with the seller? If you walk away from the sale, the next potential buyer will also have to get a bank valuation that may also lead them to walk away.

[mpjp]

We recently bought a house that we had offered a higher price for than the bank valuation came in at. The bank was lower than the independant valuation we had recieved. The bank told us they were conservative - especially in certian areas. This property was classfied as rural so teh valuations are lowered on that basis alone.

We used that to negotiate the price down. The vendor agreed to split the difference with us.

The bank loaned us the money...they didnt care about the valuation - only that their money was covered (so obviously our money made up the difference).

[SeaPrincess]

I don't think this is the case any longer. Banks are being very conservative in their valuations and the valuations can vary widely between lenders.

In our experience, this is true - bank valuations have invariably been lower than real estate valuations because the bank is only concerned with protecting their interest if you default. Their valuation reflects what they expect to get with a quick sale, not maximising their return.

[Kemismum]

As long as the amount you want to borrow is within the loan to value ratio (LVR) they require based on their valuation, you will still get the loan.

So say the bank requires a LVR of 80% minimum, they will lend you up to $360,000 on a property valued by them at $450,000. It doesnt matter how much you actually pay for the house, as long as you can show you can pay the difference and service the loan.

Banks are being very conservative on valuations at the moment, but yes I would use that as a bargaining tool to reduce the price if possible.