Bank Valuers — dumb (and dumber)!

Valuers from Colleys enjoying the view

What is it with these people?  Perhaps I’m naive but sometimes I thinking you shouldn’t even need to worry about some rental valuations.

I’m referring to ensuring that the bank is satisfied that the expected rental for a unit you plan to buy is enough to give you your maximum loan to value (LTV).  An example to recap how to calculate this:

• Property purchase price = £280,000
• Mortgage ‘Pay’ Rate = 4.99%
• Rental income per month = £1,500 (this is based on comparables in the local area)
• Rental stress = 125% (Rental stress” is a feature of any mortgage product and refers to the percentage of coverage over the mortgage that the lender requires. The most common rental stress is 125%.)
• Maximum LTV = Annual rental income / Mortgage rate X Rental Stress

So using the above example: (£1500X12) / 125% /  4.99% = £288,577

Which means based on the expected rental income the bank will lend us £288,577.  Of course this is subject to the maximum LTV of 70% in this case, which is £196,000.  So we’re expecting to receive the maximum LTV of £196,000 – it’s not even worth worrying about.

These are actual figures of a property in London we’re buying this week.  Nothing too exotic, a 3 bedroom terrace in great condition — ready to move in.

Now based on searches on rightmove.co.uk and speaking to the local agents, we know that the LOWEST rent for this type of property is going to be £1,500 per month.  There’s nothing on offer or recently let for less than that.  So we’re pretty relaxed about our £196,000 mortgage.

So what happens in reality when Mr Let-me-screw-another-property-investor shows up for his 5 minute ‘valuation’?  You guessed it, an impossibly low rental assessment of £1,000 per month.  £1,000?  Oh, come on – did he even show up to the right address?  The right city?  We’re talking London, here — not Lincoln?  What does this mean to the maximum loan?  We get £192,384.  OK, £3,615 less isn’t going to kill us, but seriously, what did the valuer’s boss tell him that morning — if you don’t downvalue 5 units today, by at least 30%, I’m transferring you to our Somalia office?

Lesson — don’t take anything for granted, even if you think the numbers are hugely in your favour.  Do the usual stuff to sway the surveyor – go meet him at the appointment — give him a pack of comparables and a written rental assessment from your local letting agent.  Trust me, it helps and you’ll avoid another shafting from Jim Carey or Jeff Daniels.