Deposit on New Build before completion

harvey115

Hi

I am in the process of buying a New Build house and the completion date has been set for Sept 2012 by the developers. I have reserved the deal with £2,500 which is refundable in case the exchange of contracts does not happen within 1 month but will be charged £250 admin fee. This is all well and good.

I am confused about the deposit stage (exchange of contracts), I am suppose to pay 10% deposit (very large sum) by the end of the month if everything goes to plan. However if for any reason (or is it even possible) that the Bank after exchange of contracts and the completion date (End of June to Sep) decline the mortgage offer. What would happen to my 10% deposit?

As far as I can tell the bank will not be giving the deposit on exchange of contracts or am I just worrying for nothing???

harvey115

Seems like it is a well known problem then???

The risk of losing the deposit is very high given the financial market we are currently in...

loubel

harvey115 wrote: »

if for any reason (or is it even possible) that the Bank after exchange of contracts and the completion date (End of June to Sep) decline the mortgage offer. What would happen to my 10% deposit?

Once you exchange contracts you are contractually obliged to buy the house. If your offer is withdrawn during that time then you would need to obtain alternative funding. If you couldn't do so and were unable to complete then you would be in breach of contract and lose your deposit (and may be liable for your sellers further losses if applicable).

Mortgage offers can be withdrawn at any time, but lenders will not usually do so after exchange without good reason. Make sure that you don't do anything to prejudice your mortgage application eg change job, take out a loan or miss a credit card payment between exchange and completion. You should ensure before exchange that your mortgage offer will not have expired by the expected date of completion and check with your mortgage advisor whether your lender are likely to agree to extend it if completion is delayed.

harvey115

Harsh realities of the world...

What if someone is made redundant or lost a job during the time. I guess there are usually many what ifs. So the best possible solution would be to complete the purchase as soon as possible after the exchange.

Dave_Ham

Not sure I fully appreicate the issue, although if this is exchanging for a long period on a new build then typically this is for liquidity for the developer as you are legally ibliged to buy or forfeit the deposit.

I am assuming you have a mortgage offer and the bank have been able to value it as part of this. This is one of the bigger issues, that you buy in good faith but it gets down-valued and then you have a real problem if this is post deposit and/or exchange.

Good luck

harvey115

Here is where I am:

Reservation stage:
28 May to 28 June
Exchange by 28th June
Mortgage application in process and valuation is happening tomorrow

On the day of exchange I need to present 10% deposit.

The completion is set for Sept 2012.

So I was a little worried if the Bank has agreed on the exchange of contracts date that they will lend me the money i.e. I get a mortgage offer. Is there a possibility the lender then decline the offer on the day or before the completion (so about 2 to 3 months gap between exchange and completion)?

Dave_Ham

Not unless they detect something that you were untruthful about, to be honest it would have to be a biggie to pull at this stage.

I hate these lengthy exchange-completions as they only ever benefit the developer.

Fingers crossed for valuation tomorrow, have seen a fair few newbuilds down-valued lately...

Good luck

harvey115

Thanks Dave for keeping my hopes up.

I am getting mortgage from Clydesdale.

I know about the new build getting down valued as well as I am also renting in a new build area where people are having problems with property prices even though the house prices are low from old houses nearby.

Dave_Ham

Good luck - as a rule Clydesdale do not go looking for issues post offer unless something finds them.

Hope the val goes ok

harvey115

Hi Dave

I got a letter with a valuation copy from the surveyor this morning. The lender (Clydesdale) used e.surv and luckily the report was very positive. The house value was verified and the surveyor agreed with the amount.

I also went to see the plot this weekend and the sales advisor from the developer mentioned that the same surveyor has valued many other properties from the same site. So it made me a little comfortable over the weekend and the letter this morning has made me happier.

I noticed that on the report the surveyor mentioned that they recommend an inspection on completion. I guess this is a standard reply from surveyors to cover themselves, but do the bank ask for any inspection on completion?

So now waiting for other processes to move forward. Not sure what other things the lender would be doing from here onwards other then income and outgoings.

Katpin

i've bought 2 new builds in my house moving 'career' (I know I'm insane!!!) neither have had an inspection on completion of the build, but then my lender was Nationwide so it may vary from Lender to Lender.