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Say I put down 50% deposit on a house (in the UK), and the other 50% is provided through a mortgage, what happens if I default? Does the bank walk away with the property and the potential of selling for the full sale price? Or do they have to return the deposit back as a % of the property value?

The reason I ask is that, I have received a survey valuation for a property and it is considerably less then the asking price. The bank is therefore only offering a little bit more than the actual valuation. I've heard they are being cautious to protect the banks, protecting them from the risk of the property losing value.

If they only get returned the outstanding debt amount of the loan, there could be a shortfall. If they get to keep 50% of the deposit on the property, then the deposit already paid down would quite likely make up for the short-fall.

Of course, if prices go up the bank doesn't lose out.

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  • Why would you want to buy a house for considerably more than it is worth?
    – JamesRyan
    Jul 31, 2014 at 12:04
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    @JamesRyan Value is a very personal thing, the bank's definition of value is worth to the general populace. It might be the house is in the perfect area for snail farming and the OP is a very enthusiastic snail farmer - willing to pay a high price for it. That fact isn't relevant to most of the other potential buyers, ergo the house is less valuable on the general market. I'm not saying its a good idea to pay more than the appraised value, but there are reasons for it
    – ChrisFletcher
    Nov 1, 2018 at 13:58

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If your house is repossessed because you've defaulted on the mortgage then the bank sells the house (probably cheap, because it's a quick sale of a repossessed property), takes the money you owe them (the mortgage balance plus the outstanding interest payments and any costs to sell the house like estate agent's or auctioneer's fees) out of the proceeds, and then pays you the rest. If on the other hand the sale price doesn't cover the mortgage and outstanding interest, then they can pursue you for the balance (in many states of the US mortgages are "non-recourse" and they can't do this, but in the UK they can).

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    Yes you are always better trying to sell your house for less than the value but more than you owe. It will cost you much less.
    – user4127
    Dec 13, 2011 at 14:41
  • This is a very old question, but just to clarify further the comment that user4127 left, the bank doesn't really care if the house sells for lots more than the amount owed on the mortgage or just a little bit more. In either case they get their money. On the other hand, you care a great deal about any extra money, so it is very much in your interest to find a sales method for the house that will bring in more money.
    – Itsme2003
    Apr 1, 2020 at 18:49

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