"Repair Allowance" with mortgage

China2

Hi all,

Wondering if anyone out there can give me some advice. We are first time buyers and we had an offer accepted on a house late last year and agreed £170,000. Everything was going fine, mortage agreed etc. Then just before Christmas the pipes in the house burst bringing down 2 ceilings and generally giving everywhere a good soaking.

The agent said no problem, its fully insured and works will begin shortly. We then found out last week that the insurance company are refusing to pay out due to the fact the house was unoccupied and the seller didn't have the right type of insurance.

The seller is a single mother and seems to just want this all to be over now so we came to an agreement that she would give us an allowance of 10k to get the repair work done after completing (we got quotes around the 8k mark but factored more to account for anything unexpected)

We were happy with this and informed our solicitor, who told us in not so many words, there is no way our mortgage company will agree to this since the figure is so high. We gave her copies of our quotes to send away to them but we have been told not to hold our breath.

Does anybody have any experience of this? Are the mortgage company likely to have an issue with it considering we have proof of the work needing to be done?

Thanks
(1st post!)

SandC

Probably not what you want to hear, but I would walk away from this.

When you say the seller has given you 'an allowance' - what exactly is she proposing? Is this just a reduction in price but you get the work done before completing? And you are asking the lenders to let you have this up front?

You see the thing is, she could pull out before completion, after you've had the work done and then you would be in trouble. The lenders see this is as too big a risk.

I would demand that she gets the work done before you exchange - if she refuses then you walk away.

China2

SandC wrote: »

Probably not what you want to hear, but I would walk away from this.

When you say the seller has given you 'an allowance' - what exactly is she proposing? Is this just a reduction in price but you get the work done before completing? And you are asking the lenders to let you have this up front?

You see the thing is, she could pull out before completion, after you've had the work done and then you would be in trouble. The lenders see this is as too big a risk.

I would demand that she gets the work done before you exchange - if she refuses then you walk away.

The idea is that we still pay her the full £170,000 for the house, but she then gives us back 10k on completion for us to bring the house up to the spec it was when our offer was accepted. We are not asking the mortgage company to lend us any more or any less.

It understand from the estate agent this is quite common but usually only for small amounts up to £1k.

Our mortgage offer expires at the start of March so we are reluctent to wait for her to arrange for the works to be done before we exchange as it will never be ready. Plus tbh I would prefer to be able to have the control over the works.

Thrugelmir

China2 wrote: »

The idea is that we still pay her the full £170,000 for the house, but she then gives us back 10k on completion for us to bring the house up to the spec it was when our offer was accepted. We are not asking the mortgage company to lend us any more or any less.

The property is no longer worth a £170k. Until the remedial work is undertaken and the property reinstated to its former state.

Offer less for the property.

SandC

I agree with Thrugelmir in that case then. It's too much of a risk for a lender of a sum of that amount - though to be honest I'd never heard of it before, for small sums surely people would find the cash for work that needed doing? The house has now been devalued and if you want to do the work yourself your best bet is to renegotiate on price - but you won't be able to get the work done until you complete.

It's a messy situation - but her suggestion stands to potentially make it far more messy.

SouthCoast

[STRIKE]Walk[/STRIKE] run away and let somebody else take the pain.

CloudCuckooLand

Sounds like an ideal situation to grab an absolute bargain from someone who doesn't want the hassle any more.

Knock £20k off the offer...wait patiently.

China2

CloudCuckooLand wrote: »

Sounds like an ideal situation to grab an absolute bargain from someone who doesn't want the hassle any more.

Knock £20k off the offer...wait patiently.

Of course in an ideal world we would be in a position to drop our offer and save ourselves a load of money in the long term. Unfortunately I don't have 10k in cash sat around to do the repair works since all our money has been put towards the deposit, and I don't fancy living in a damp house until we save up the cash to do it.

I'd been led to believe giving an allowance was a perfectly normal thing by afew people (colleagues & friends, not just the agent) and it was a bit of a shock when the solicitor didn't hold out hope. I understand in the old days when buyers would offer large allowances which buyers would then use as their deposit is a big no no. But we have already provided proof of our deposit and are also providing proof of the required works so that shouldn't be an issue.

CloudCuckooLand

..."in the old days" we had a functioning banking industry.

You effectively want to give them a deposit and then get it back again to do the work...leaving them with no equity protection against price drops in the event of repossession.

Trouble is, assuming the mortgage is scuppered, if you were patient for the owners to do the work themselves, could you trust them to have done a pukka job?

If they haven't started yet, what extra damage has been caused by frost etc..? Your quotes could be under-estimating the problem, somewhat.

SandC

Perhaps the people you have spoken to haven't been involved in the house buying or selling process for a number of years. It was only a couple of years ago that it was entirely possible to get a 120% mortgage based on how prices had been rising so sharply. It was certainly easy to get 100% mortgage - if you'd have been in your situation 4 years ago I've no doubt it would have been a goer - but not now.

Say you dropped out - what would the next potential buyer do? Based on a current valuation and survey - which would state large repairs required due to a pipe leak - no lender would value it at £170k. So another buyer would either insist the repairs are carried out or will negotiate a large reduction in the price. Just because you are some way along the line in the purchase doesn't mean you should treat it any differently.

flora48

Is this house extra special? If not I would not undertake the work on this house. £10k is nowhere near enough, a leak in a pipe embedded in concrete affecting the ground floor only cost our insurance company nearly £15k and took 6 months to dry out!