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What happens if your house value falls in value?

  • 27-04-2020 12:57pm
    #1
    BaRcOe
    Registered Users Posts: 1,164 ✭✭✭


    Hi,

    So you buy a house for 250k and all goes through OK.

    But then in 5 months, the bank re-evaluates the house and the value drops to 240k.

    What happens now? Do I now owe the bank 10k?


Comments

  • #2
    mulbot
    Registered Users Posts: 1,794 ✭✭✭mulbot


    No.


  • #3
    mordeith
    Registered Users Posts: 5,278 ✭✭✭mordeith


    BaRcOe wrote: »
    Hi,

    So you buy a house for 250k and all goes through OK.

    But then in 5 months, the bank re-evaluates the house and the value drops to 240k.

    What happens now? Do I now owe the bank 10k?

    You owe the bank whatever you borrowed off them in the first place irrespective of current value of the house.


  • #4
    KevRossi
    Registered Users Posts: 4,378 ✭✭✭KevRossi


    Yes, you owe them the full €250K, including the €10K loss in value.

    On the other hand if the value of the house goes up to €300K, you will only owe them the original €250K.


    Why am I answering this?


  • #5
    clintondaly
    Registered Users Posts: 1,813 ✭✭✭clintondaly


    You owe the bank whatever you borrowed from them.


  • #6
    biko
    Registered Users Posts: 81,223 ✭✭✭✭biko


    The value of a property is fluid.
    It only solidifies when you buy or sell the house.


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  • #7
    jrosen
    Registered Users Posts: 1,629 ✭✭✭jrosen


    Nothing happens, your loan is what it is.


  • #8
    BaRcOe
    Registered Users Posts: 1,164 ✭✭✭BaRcOe


    My actual scenario is that I am Sale Agreed at the moment at 250k so am weary of the house price decreasing in value before the mortgage is drawn down due to covid 19.

    Will the bank ask us to make up the difference if the value of the house drops by e.g. 10%?


  • #9
    Das Reich
    Registered Users Posts: 736 ✭✭✭Das Reich


    BaRcOe wrote: »
    My actual scenario is that I am Sale Agreed at the moment at 250k so am weary of the house price decreasing in value before the mortgage is drawn down due to covid 19.

    Will the bank ask us to make up the difference if the value of the house drops by e.g. 10%?

    Can't you pull out before signing?


  • #10
    BaRcOe
    Registered Users Posts: 1,164 ✭✭✭BaRcOe


    Das Reich wrote: »
    Can't you pull out before signing?

    Can do. Just trying to weigh up the risks at the moment.


  • #11
    bilbot79
    Registered Users Posts: 1,980 ✭✭✭bilbot79


    BaRcOe wrote: »
    My actual scenario is that I am Sale Agreed at the moment at 250k so am weary of the house price decreasing in value before the mortgage is drawn down due to covid 19.

    Will the bank ask us to make up the difference if the value of the house drops by e.g. 10%?

    I doubt the bank will change anything at all because your ability to repay the 250 has been underwritten etc. It's more fool you if the value goes down.

    There are other factors for you to consider in terms of pulling out

    Will prices goes down at all?
    Will the drop be enough to make it worthwhile?
    Will prices take a long time to drop? (Yes)
    Will the effort be zero sum against rent you will pay while waiting?


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  • #12
    BarryD2
    Closed Accounts Posts: 4,732 ✭✭✭BarryD2


    BaRcOe wrote: »
    My actual scenario is that I am Sale Agreed at the moment at 250k so am weary of the house price decreasing in value before the mortgage is drawn down due to covid 19.

    Will the bank ask us to make up the difference if the value of the house drops by e.g. 10%?

    You have to take a long term view. If it's a place you intend to live in for a considerable time, the +/- 10K will be unimportant.

    But if price fell by €50K or whatever, maybe you'd have a chat.


  • #13
    dennyk
    Registered Users Posts: 1,641 ✭✭✭dennyk


    The value of the house doesn't change anything regarding your mortgage once you've drawn down on the loan to make the purchase. The risk that the collateral (your house) might drop in value is one of the many factors taken into account by the bank when it chooses to make the loan. It will make it difficult or impossible to refinance, and it might leave you in a pickle if you have to sell the property for some reason when the value is less than what you currently owe on the loan (as you'd have to make up the difference out of your own pocket), but the bank can't suddenly demand you pay an additional deposit or increase your payments or anything because the value of your house has dropped.

    Before the draw down and sale has gone through, the value of the property is unlikely to change significantly over such a short period of time (barring some sort of sudden disaster that damages the property or otherwise makes it uninhabitable, of course). Has the bank performed a valuation already? If so, that's the value they will go by. Valuations are generally considered good for a certain amount of time; it can vary from bank to bank and depend on the type of loan, but it's usually 4-6 months or so, so unless the valuation was done a long time ago, there should be no issue with getting your financing based on the current assessed value.

    If they haven't done their valuation yet, then you'd need to wait until that's been done; the bank will make a decision based on that valuation, so if it does turn out to come back much lower than the current agreed sale price, you'd generally either have to put down a larger deposit to maintain the required loan-to-value ratio that the bank is looking for, or you'd have to renegotiate the sale price with the seller based on the valuation results.


  • #14
    riclad
    Registered Users Posts: 8,184 ✭✭✭riclad


    Once you buy a house the value do,es not matter much
    Unless you want to sell it a mortgage is 25 years at least
    Over the long term house prices go up and down. U buy a house to live in it for ten years at least. Say it, s worth 30k
    Less than the loan it's in negative equity.
    You have to pay off the full mortgage
    Regardless of the house value now or in 10years time
    Say it goes up in value by 50k. Good for you
    You could sell the house and pay off the loan
    and make a profit.
    IF we go back to 2008 after the crash. House prices
    fell by 50per cent people had a 200k loan on house,s that wwere valued at 100k
    If you intend to live there for 20years the house value
    Hardly matter,s as long as you are working
    and can afford to pay the loan every month
    I read banks are coming concerned about the
    Current lock down. They will be even more strict
    about giving loans on houses especially to first
    Time buyers


  • #15
    riclad
    Registered Users Posts: 8,184 ✭✭✭riclad


    Some people who are in the middle of buying
    A house may stop the transaction if they have
    Not signed a contract as they might expect house prices to fall by 10 to 20per cent due to the current crisis


  • #16
    The_Conductor
    Moderators, Society & Culture Moderators Posts: 32,278 Mod ✭✭✭✭The_Conductor


    If you have not already drawn down the mortgage, the lender may, at their discretion, re-value the property.
    If they do so- any mortgage offer will be subject to the new valuation they ascribe to the property.

    What is key here- have you drawn down the mortgage as yet, or are you at an earlier stage in the process.


  • #17
    BaRcOe
    Registered Users Posts: 1,164 ✭✭✭BaRcOe


    Thanks so much guys for the advice guys, some really useful stuff! Our initial situation was that we gave a deposit, which was refundable because we had some issues to address first. So it was ok to pull out without any loss (besides some solicitor fees).

    Today we pulled out of buying the house, due to our realisation of size. It was a 3 bed house, with pretty small bedrooms and not much extra space for kids...etc. We don't have kids atm, but in the future, it simply wouldn't be big enough for a family of 3. It was simply too small and not our dream house.

    We are getting our deposit back...etc and the Estate Agent were cool about it and said, "hey if we do more viewings of one of our 4 beds we will contact you".

    We feel relieved, so it must have been the right decision. Also we are staying at a place with cheap rent and its just fine for now. Who knows, places may be cheaper come the end of the year ;)


  • #18
    awec
    Administrators Posts: 53,342 Admin ✭✭✭✭✭awec


    BaRcOe wrote: »
    Thanks so much guys for the advice guys, some really useful stuff! Our initial situation was that we gave a deposit, which was refundable because we had some issues to address first. So it was ok to pull out without any loss (besides some solicitor fees).

    Today we pulled out of buying the house, due to our realisation of size. It was a 3 bed house, with pretty small bedrooms and not much extra space for kids...etc. We don't have kids atm, but in the future, it simply wouldn't be big enough for a family of 3. It was simply too small and not our dream house.

    We are getting our deposit back...etc and the Estate Agent were cool about it and said, "hey if we do more viewings of one of our 4 beds we will contact you".

    We feel relieved, so it must have been the right decision. Also we are staying at a place with cheap rent and its just fine for now. Who knows, places may be cheaper come the end of the year ;)

    Good call pulling out if you’re concerned it would be unsuitable long term.


  • #19
    Eric Cartman
    Registered Users Posts: 26,283 ✭✭✭✭Eric Cartman


    However if your house drops in value from a million to 650k you can stop paying your mortgage, get ben Gilroy to defend you and constantly demand the bank forgives the negative equity and lets you pay the much new lower price. But that option only works in Ireland and screws over everyone else with higher interest rates.


  • #20
    Murt10
    Registered Users Posts: 1,188 ✭✭✭Murt10


    BaRcOe wrote: »
    Who knows, places may be cheaper come the end of the year ;)

    I'd be very surprised if they don't.

    Competition is what has pushed prices up to where they are. Too many people chasing too few houses.

    Unfortunately, lots of businesses are going to close or not going to reopen after the lockdown. People are invariably going to lose their jobs as a result. .

    Add to this the massive recession that's expected to hit the UK when they take the hard Brexit route at the end of the year, which they seem absolutely determined to do.

    Provided yourself and your partner still have jobs, it's inevitable these events are going to blow lots of your competition for houses out of the water. With far less competition, there's only one way that prices can go.

    Hang tight for a while. You may, in a few months, provided you can still get a loan, be able to afford a place that you can only dream about at the moment.

    It's an ill wind that blows nobody any good.


  • #21
    hurler32
    Closed Accounts Posts: 451 ✭✭hurler32


    The Bank could force you to sell the house in a fire sale and Larry Goodman will buy it for half nothing off you and make you work in one of his meat factories for the rest of your life on less than minimum wage !


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  • #22
    collywobble7
    Registered Users Posts: 95 ✭✭collywobble7


    bilbot79 wrote:
    Will prices goes down at all? Will the drop be enough to make it worthwhile? Will prices take a long time to drop? (Yes) Will the effort be zero sum against rent you will pay while waiting?


    I can see all of those flying over the OPs head tbh


  • #23
    Quantum Erasure
    Registered Users Posts: 8,160 ✭✭✭Quantum Erasure


    biko wrote: »
    The value of a property is fluid.
    It only solidifies when you buy or sell the house.

    like Schrodinger's House


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