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Help to buy equity loan - contract wording

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Prish
Prish Posts: 5 Forumite
in House buying, renting & selling
Hi all,

I am currently going through the process of purchasing a property with the London help to buy - equity loan scheme.

The process is now nearing exchange of contracts. I've just got the contract and came across the following wording on page 3:

"If the deposit actually paid shall be less than 10% of the purchase price then the balance of such 10% shall become payable to the seller on the date fixed for completion whether or not completing does then take place and further such sum shall remain a debt from the buyer to the seller in the event of rescission or failure to complete through no fault of the seller."

To me, this paragraph doesn't seem right. I mean, doesn't this pretty much say that if for some reason the lender bank pulls out and doesn't want to lend you money for any reason, then you still owe the seller 10% of the purchase value regardless of whether you get the property or not??

Is this normal to be on the contract?

Would be great if someone who has had experience with this scheme provide some advise! :)

Thanks

Prish

Comments

  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    That's not down to the HTB scheme that's just how buying property in England works. You pay a deposit and if you exchange but cannot complete the sale you forfeit the deposit and possibly any other expenses your vendor faces because you cannot complete. Ask your solicitor about it.
  • Prish
    Prish Posts: 5 Forumite
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    Thank you for the quick response Pixie! Much appreciated. At least that gives me relief that it's normal, just seems pretty risky though since you have no control over if your lender could all of a sudden just decide not to lend you money for any reason.

    Again thank you!

    Have a great day.

    Prish
  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    Try not to give a lender to change their mind then. For example, don't go applying for any more credit between now and completion because I agree that it can be a bit nerve wracking.
  • saajan_12
    saajan_12 Posts: 3,624 Forumite
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    That is normal. If you fail to complete i.e. don't pay the full funds, you lose 10% of the purchase price (or more if the seller's losses as a result of your breach of the contract exceed the 10%). Usually you just lose the exchange deposit but if your deposit is less than the standard 10%, this is saying you still lose 10%.

    The buyer is considered to fail to complete if they can't raise the funds, even if the underlying cause is (for example)
    *mortgage offer withdrawn/late
    *H2B Equity loan withdrawn/late
    *Buyer loses their job
    *Buyer's bank account gets robbed
    ..
  • Prish
    Prish Posts: 5 Forumite
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    Thanks all. That all makes me feel a little more at ease :)
  • SuboJvR
    SuboJvR Posts: 481 Forumite
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    In practice, if someone only gave a 5% deposit then how would they be expected to pay the remaining 5%?

    (Talking London pricing in the op's case so will be a significant amount!)
  • Pixie5740
    Pixie5740 Posts: 14,515 Forumite
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    SuboJvR wrote: »
    In practice, if someone only gave a 5% deposit then how would they be expected to pay the remaining 5%?

    (Talking London pricing in the op's case so will be a significant amount!)

    The vendor can take your first born.
  • Prish
    Prish Posts: 5 Forumite
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    @suboJvR - i think that would probably be covered by the mortgage then if you did not have the money to cover the remaining 5%.

    so you would have 5% deposit, 40% equity loan , 55% mortgage
  • gingercordial
    gingercordial Posts: 1,681 Forumite
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    SuboJvR wrote: »
    In practice, if someone only gave a 5% deposit then how would they be expected to pay the remaining 5%?

    (Talking London pricing in the op's case so will be a significant amount!)

    You mean if you've failed to complete and have to come up with the extra 5% yourself to make the 10% owed per the contract?

    The seller could take you to court to claim the money. If you could get a personal loan to settle it, you'd have to do that, or borrow from parents, rob a bank... If all else failed you'd be forced into bankruptcy.
  • SuboJvR
    SuboJvR Posts: 481 Forumite
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    gingercordial wrote: »
    You mean if you've failed to complete and have to come up with the extra 5% yourself to make the 10% owed per the contract?

    The seller could take you to court to claim the money. If you could get a personal loan to settle it, you'd have to do that, or borrow from parents, rob a bank... If all else failed you'd be forced into bankruptcy.

    Well that all sounds moderately terrifying. :eek:

    This house buying lark is so scary. Must keep reminding myself that people do it all the time, and not think about the most unlikely scenarios of things going wrong for reasons outside of our control.

    I guess with Help to Buy, new builds, the sellers ie developer couldn't really claim to have losses that exceed the original 5% deposit one expects as they will still sell the house to another person.
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