Contract Clause to Protect Against Lender Withdrawing

nicky.noodles

Hi,

We're in the process of buying an house. We're at the start of a chain (we're letting out our current property), three others in the chain right now.

We're at the contract negotiation stage. One thing that struck me is how the contract (as usual) states that we would lose our 10% deposit if we pulled out, but how our mortgage offer states very clearly "this offer can be withdrawn at any time".

I've no reason to believe that our mortgage would be withdrawn, the application was truthful down to the last pound. However, being a business owner I like to work off worst case scenarios when signing contracts and the worst case here is us losing tens of thousands of pounds if our lender decided to not lend.

I'm considering asking our solicitor to put a clause in the contract that states that we'd not be deemed liable if our lender withdrew or that we'd only be liable 1%, 2%, whatever.

Has any one successfully this negotiated something like this? Has anyone been on the receiving end of a clause like this? I would imagine that it would ripple through the entire chain which could be a problem.

I've read that this is more common in commercial contracts .. however there's generally not a chain there.

To me, it seems crazy that the lender doesn't get bound into the contract in these 'uncertain' times. They have to make a final decision at some point, why not at contract exchange?

I would never sign a business contract that put me at so much risk based on the actions of a third party yet it seems that people do this every day without thinking about it. With that said, several years ago we bought our current house and didn't even consider this scenario.

kingstreet

Lender obligation starts at completion. Exchange has no legal bearing on a lender.

I doubt you'll get your clause, but there's nothing to stop you asking.

tHomBleached

If I'm reading that correctly, you're proposing to limit your risk from 10% by spreading it further up the chain? Although not directly, that's the outcome and also how it would read from someone further up the chain.

I'd doubt anyone up the chain would agree to it and they would probably wonder what motivation there is in you including such an amendment to the contract.

nicky.noodles

@tHomBleached Yes, I try to limit my risk in every contract I sign.

The vendors are moving to a smaller house. If our mortgage fell through and we couldn't get a another one, they would be on the hook for 10% of their new property. However, this would be much less than the 10% we're paying them.

I'm thinking that one workable compromise scenario (as a plan is:

- I lose 10% if we pull out (standard)
- I lose 6% if our lender pulls out

6% = the vendors 10% deposit so their risk isn't increased (although they wouldn't have a windfall if things did break down).

tHomBleached

I suppose you can but ask. Just tread carefully, think about what it looks like from the other party's point of view.
Considering you have no reason to assume your lender is going to pull the rug under the carpet, just concentrate on squeezing that time between exchange and completion, thus mitigating your risk without increasing others.

Yorkie1

I can't for a moment see the seller's solicitor advising his/her client agreeing to this amendment to the standard terms of the contract, so don't get your hopes up.

As another poster has said, aim for a short time between exchange and completion (but would not advise trying to do it on the same day - brings a whole load of extra stress that nobody needs).

thelem

As a vendor I'd get nervous if I was asked for an amendment like that.

You might have more luck getting to amended to something like "Vendor's demonstratable losses, up to a maximum of 10% of agreed purchase price".

Remember even if your lender does pull out, you just find a mortgage from another lender, unless you are really pushing your affordability or your personal circumstances significantly change.

nicky.noodles

thelem wrote: »

You might have more luck getting to amended to something like "Vendor's demonstratable losses, up to a maximum of 10% of agreed purchase price".

Thanks. That sounds like something worth trying for.

I'm self employed in the eyes of a lender so getting a mortgage hasn't been straightforward or quick. We're with a high street lender, but it took weeks for them to verify everything they needed. We'd likely miss the completion deadline and be liable if we had to reapply.

ValHaller

nicky.noodles wrote: »

@tHomBleached Yes, I try to limit my risk in every contract I sign.

The vendors are moving to a smaller house. If our mortgage fell through and we couldn't get a another one, they would be on the hook for 10% of their new property. However, this would be much less than the 10% we're paying them.

I'm thinking that one workable compromise scenario (as a plan is:

- I lose 10% if we pull out (standard)
- I lose 6% if our lender pulls out

6% = the vendors 10% deposit so their risk isn't increased (although they wouldn't have a windfall if things did break down).

The primary problem with your proposal is that you are spreading consequences onto people who have no control over the risk

Only you can control this risk - firstly by maintaining your own probity and secondly by choosing a good lender. Your vendor has no influence which can mitigate the risk.

I assure you that to most people your proposal will be offputting - the more so for the likelihood that they will not be able to put their finger on exactly why. But it will basically be because if you have failed to manage this risk, they are even less empowered to deal with something which arises out of the relationship between you and your lender.

nicky.noodles

ValHaller wrote: »

But it will basically be because if you have failed to manage this risk ...

There's really nothing more I could do to negate the risk of the mortgage being withdrawn. There isn't a single thing that makes me think it will be.

To my thinking, asking to add a clause that, like @thelem said, limits my loss to the demonstrable loses of the Vendor (up to 10% of purchase price) seems pretty reasonable. The Vendors would be at no greater risk financially, they just don't a 'free' £xx,000 bonus if things went wrong.