Six Month Rule?

Johnnyj

My son is about to exchange / complete on his first property.

He's just been told that he can exchange right now, but cannot complete for another three months, because the property was last registered at the Land Registry only on Dec 14th last year.
It is the lender that is imposing this rule, which says that a property must have been registered for a minimum of six months by the last owner, to allow mortgage funds to be released.

It was purchased by a developer, refurbished, and put on the market.

Not sure where this is going to go (the seller won't be impressed), but has anyone come across this before?

John

lee111s

Possible to get a different lender who doesn't impose this? Might delay exchanging by a few weeks due to new survey's etc. Also a little bit of additional cost due to new product fee/valuation but would probably be worth a 3 month wait!

ValHaller

Probably best asked on the Mortgages and Endowments forum http://forums.moneysavingexpert.com/forumdisplay.php?f=15.

People on there will have experience I am sure. There are reasons for this rule, but it seems rather gross to penalise a developer who can turn a property round quickly.

Johnnyj

Yep, thought about the new lender route etc., but as you say we may as well wait three months. The buyer (my son) doesn't want this, the seller doesn't want it, neither set of solicitors wants it. Only the lender. The risk is that the seller gets shirty and pulls the plug.

Wantahouse_2

This is a very common requirement with mortgage companies - it is pretty standard for them to require a 6 month gap between change of ownership. I don't think changing lender will have any benefit, and the seller may not like it but he'd have the same problem with anyone needing a mortgage to buy the house.

JQ.

I'm pretty certain it came about from people flipping off-plan flats during the boom. It was not uncommon for a flat to be sold 6 times between exchange and completion by different investors. Suddenly a £100,000 flat became a £200,000 flat and you can guess where the banks lost alot of money. So they've tightened up.

I'm surprised the developer selling to your son did not know this.

G_M

Is it also not connected to money-laundering?

Drugs barons/people traffickers with cash to get into the system buy a property cash, then sell it and bingo - the funds now have a genuine 'source' (the property), and can be legitimately banked.

isisini

We had a similar problem when we bought our first house in late 2012. We were literally about two weeks off the six month deadline (a similar situation where a developer had bought the house and refurbished it, including putting on a new roof, adding double glazing etc.).

We went back to our lender and explained the situation (through our solicitor) and they asked the seller to provide a detailed reasoning for the quick turnaround plus all the invoices for all the works done to the house to show the value he had added to the property (which has proved quite useful to have since!). Once all this was given the lender allowed us to proceed and release the funds. Could be worth seeing if your lender will negotiate further on this?

kingstreet

As an example, Halifax won't accept an application if it knows the property changed hands in the last six months, but others are more relaxed and one or two I can think of won't apply the "rule" at all.

It's upto you if you want to wait or not.

Richard_Webster

As an example, Halifax won't accept an application if it knows the property changed hands in the last six months, but others are more relaxed and one or two I can think of won't apply the "rule" at all.

Yes, I've seen this happen.

A few years ago just after the Northern Rock debacle builders were really struggling to sell their newly built properties.

Large national builder built some flats near me. Speculator comes along and offers about 70% of then asking price to take a whole block from them off plan. Exchanges contracts but completion to be when flats finished.

Enter my client a few months later and goes to site sales office. People there tell her she can buy one of theirs or one the speculator had bought - they are same price (by then, a more realistic figure). She decides to buy one from the speculator - he's not ripping her off because the price is the same as those the builder is selling. Halifax send surveyor round and I get phone calls from Halifax asking about the situation -"How long has the owner owned flat?" I told them it coudln't be very long if he had even completed his purchase. Halifax declined to lend. Barclays/Woolwich did so.

Couldn't see the issue there because they would have happily given a mortgage on one of the flats the buidler was selling direct.

The issue should be about the accuracy of the valuation for the lender's security. If there are loads of Victorian terraces in a town they will be easy to value and a local surveyor will know what one is worth if recently refurbished, because there should be plenty of comparables - so to me it isn't logical that they insist on this rule in this kind of case.

Might be more of an issue for a one-off unusual property that had been refurbished - but how the 6 months would help in making the valuation more accurate I'm not sure!

JQ.

Richard_Webster wrote: »

Yes, I've seen this happen.

A few years ago just after the Northern Rock debacle builders were really struggling to sell their newly built properties.

Large national builder built some flats near me. Speculator comes along and offers about 70% of then asking price to take a whole block from them off plan. Exchanges contracts but completion to be when flats finished.

Enter my client a few months later and goes to site sales office. People there tell her she can buy one of theirs or one the speculator had bought - they are same price (by then, a more realistic figure). She decides to buy one from the speculator - he's not ripping her off because the price is the same as those the builder is selling. Halifax send surveyor round and I get phone calls from Halifax asking about the situation -"How long has the owner owned flat?" I told them it coudln't be very long if he had even completed his purchase. Halifax declined to lend. Barclays/Woolwich did so.

Couldn't see the issue there because they would have happily given a mortgage on one of the flats the buidler was selling direct.

The issue should be about the accuracy of the valuation for the lender's security. If there are loads of Victorian terraces in a town they will be easy to value and a local surveyor will know what one is worth if recently refurbished, because there should be plenty of comparables - so to me it isn't logical that they insist on this rule in this kind of case.

Might be more of an issue for a one-off unusual property that had been refurbished - but how the 6 months would help in making the valuation more accurate I'm not sure!

It's because the same thing was happening hundreds of times to hundreds of flats every week in cities like Leeds. Manchester, Liverpool, Nottingham, etc.

One speculator would buy a whole block of 100 units from the developer. They'd then split them into blocks of say 20 units and sell to another 5 speculators. They'd then split them into blocks of 5 units and sell to another 20 speculators. They'd then sell to 100 individual speculators. Those speculators would then try to sell to more speculators or find owner occupiers or find BTL'ers. All this happening before the development had even been completed. And often the developer doing the marketing on behalf of the speculators.

Such things were commonplace during the boom, they artificially raised values and made valuing such schemes very difficult as there was plenty of evidence supporting the stupidly high values. Ultimately, the banks ended up footing the bill, and now they're being rather more cautious.