Bidding gets competitive and Omar pays £265,000 at a traditional auction for a flat with a guide price of £220,000. His agreement in principle was for 85% LTV. The valuation comes back at £230,000. What is the consequence?
The lender lends on the lower of price and valuation: 85% × £230,000 = £195,500. The price is £265,000, so Omar needs £69,500 of his own money in total; after the £26,500 deposit paid on the day, £43,000 is still due at completion. He is bound from the hammer, so he must fund the gap (Walbrook (formerly LIBF) MRT1 AC2.1 and AC11.2). An auction price is not accepted as a substitute for the valuation, he cannot withdraw after the hammer, and the auctioneer refunds nothing.
Assuming the lender will follow the hammer price in a competitive auction.
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