penalty for buyer if mortgage lender pulls offer after exchange ???

ItsyBitsySpider

Hi everyone,

I wonder if someone could give me some advice to put my mind at rest. I have accepted a mortgage offer from Abbey after valuation etc. Today, I found out that I do have some late payments on my credit history going back a few years. I know this may happen in very rare circumstances but I need the worst case analysis.

My question is if the mortgage lender pulls the mortgage offer between exchange and completion - what will be the liability for the buyer.

I would like to mention after accepting this offer I found a better deal with HSBC but my mortgage application was rejected due to adverse activity. I was told by the mortgage manager that it would count as a search on the credit history only.

Any help at all will be highly appreciated

Many thanks

WestonDave

If the mortgage is withdrawn after exchange you have a big problem. Once you exchange you are contractually bound to complete on time - delay would mean interest on the outstanding sum at a penal rate (4% above base) until you complete (so on a £100k house this would be £11 per day). Failure to complete because of lack of funds would mean you lose your deposit (10% of the value - if you have negotiated a reduced deposit, you would probably have to make up the 10%).

If you think this may be a problem you may be better going for simultaneous exchange and completion in order to ensure the funds are with the solicitor before you commit - however your vendor may not be happy with that if it means uncertainty for them especially over arranging removals.

ItsyBitsySpider

WestonDave wrote: »

If the mortgage is withdrawn after exchange you have a big problem. Once you exchange you are contractually bound to complete on time - delay would mean interest on the outstanding sum at a penal rate (4% above base) until you complete (so on a £100k house this would be £11 per day). Failure to complete because of lack of funds would mean you lose your deposit (10% of the value - if you have negotiated a reduced deposit, you would probably have to make up the 10%).

If you think this may be a problem you may be better going for simultaneous exchange and completion in order to ensure the funds are with the solicitor before you commit - however your vendor may not be happy with that if it means uncertainty for them especially over arranging removals.

WestonDave I can't thank you enough for your reply. So if the mortgage lender withdraws the offer - the buyer has to find someone else to lend and if the buyer can't find anyone to lend money - the deposit will be lost.

It looks like safer options would be:

1. Exchange and complete on the same day and the sellers move out on the same day.

2. Exchange and complete on the same day and we let the sellers stay at our property as our tenants for a month or so. I am not sure what could be the implications in this case.

[Updated] I have just read on another thread that the lenders won't allow this normally, so this option is gone, I guess.

3. Do exchange and completion one month apart and add a clause in the contract that buyer won't be liable for the penalty if the mortgage lender withdraws their offer before completion. I guess the vendor may raise an eyebrow on this but I have read on some threads adding such a clause is not unusual.

In the first option, we may have to cough up a months rent at our place because we wont be in a position to give a month's notice to our landlord but that's a small price considering 10% deposit on a property worth £260k.

Any thoughts would be highly appreciated ...

Thrugelmir

ItsyBitsySpider wrote: »

Today, I found out that I do have some late payments on my credit history going back a few years.

Abbey would have offered you a mortgage with full knowledge of this.

HSBC may well have declined due to the recorded activity with the Abbey.

DRP

If you've had an offer already, then they won't be doing any more credit checks before handing over the cash...

mrginge

DRP wrote: »

If you've had an offer already, then they won't be doing any more credit checks before handing over the cash...

Well they might....

G_M

It is worse than described above.

The seller does not care about your source of finance. He just wants to be paid, in full, on the date the contract specifies. So if your lender pulls out, that is your problem,not his.

But not only will the contract specify penalties as described above,but the seller could sue for his losses. He will almost certainly not have enough money to pay for the property HE was buying, since he'll be relying on you to pay him.

So HIS seller, will make HIM pay penalties, which he will pass on to you.

And if the chain extends on upwards, there may be 10, 15? people ALL unable to fulfill their contracts. And all will blame you, not just for the inconvenience, but the financial loss.

They may also have all booked removal companies, who will demand payment for late cancellation. Who will be expected to pay.......?

One of them may have been emigrating and be unable to leave: flights cancelled, job lost, etc etc

Could get very expensive!

DRP

mrginge wrote: »

Well they might....

Might they?

mrginge

DRP wrote: »

Might they?

Yes they might.

ItsyBitsySpider

G_M wrote: »

It is worse than described above.

The seller does not care about your source of finance. He just wants to be paid, in full, on the date the contract specifies. So if your lender pulls out, that is your problem,not his.

But not only will the contract specify penalties as described above,but the seller could sue for his losses. He will almost certainly not have enough money to pay for the property HE was buying, since he'll be relying on you to pay him.

So HIS seller, will make HIM pay penalties, which he will pass on to you.

And if the chain extends on upwards, there may be 10, 15? people ALL unable to fulfill their contracts. And all will blame you, not just for the inconvenience, but the financial loss.

They may also have all booked removal companies, who will demand payment for late cancellation. Who will be expected to pay.......?

One of them may have been emigrating and be unable to leave: flights cancelled, job lost, etc etc

Could get very expensive!

I understand your point. In our case, the seller is going to rent a property and there would be no chain involved so it may not be too bad, still the removal costs and any letting agent fees could be payable. I am more worried about losing the big amount (big for us at least) of the deposit.

Any thoughts on how should I proceed with this ?

G_M

ItsyBitsySpider wrote: »

.... In our case, the seller is going to rent a property ....

So he will have signed a tenancy agreement binding him legally to paying £1000 per month for the next 6 months.

That's £6000.

And he'll still be paying his mortgage on the unsold property.