If a mere 10% reduction in valuation kills the deal , what is (was) the profit margin on a new build house?
If you take the average house price of £250,000 as a starting point.
Mr valuer comes along and says knock 10% off, so that's £225,000.
Mr & Mrs Buyer want a 70% mortgage, so they were looking for £175,000 to start with. Now the bank will only give them £157,500. That's a difference of £17,500.
Next move is that the buyer comes to us and holds their hand out for a £17,500 reduction on a price that has already been reduced. Given that a typical profit margin is 15% our original £250,000 price tag showed £37,500 of profit, but if we'd already taken £20,000 off to attract the buyer in the 1st place, another £17,500 leaves nil profit.
Hence why there is so much stock around the country and why we cannot shift them due to the valuers.
The instant 10% off scenario is real. It means that the buyers cannot borrow as much as they need. If you then reapply for another mortgage and play around with the price so that the value comes out to necessary £170,000 figure then you are committing mortgage fraud.
The question is just how long the banks will continue on this tack, because they are still having to pay interest on savings, but to pay that the banks need to make money on the mortgages.
Landman
