A mortgage offer can still be withdrawn after exchange – how to minimise the risk?

V_for_viennetta

Not applicable to my case, but out of curiosity: does anyone know how it works in chains? Is there any kind of clause that typically gets added, whereby you get your deposit back if it's another party that causes the chain to collapse after exchange? Or, if one party fails to complete, then it's always everyone suing each other and keeping each other's deposit?

ACG wrote: »

There is nothing to say you have to exchange as soon as you are ready to, you can just sit and wait until closer to the expected completion date.

Very true. But the paradox is that an offer conditional on the mortgage would give MORE protection to the sellers; if instead we simply exchange in 2 months and complete after a week, it means I have 2 months during which I could walk away or try to renegotiate the price at the last second. I wouldn't, but they cannot be sure of that.

AnotherJoe wrote: »

It was an example, point being the seller has no knowledge of your situation at all and you are asking them to take on board things the lender (that they know nothing about) may do as a result of things you may have done (that they know nothing about).

OK, I think I see your point now. I am worried about lenders deciding to pull out for strategic / macroeconomic reasons that have little to do with borrowers (e.g. negative outlook on the country, the pound collapsing after Brexit, a Corbyn government etc), while you are saying that there is a huge grey area in which it would be a mess to determine if the offer gets withdrawn because my circumstances have changed or the bank has changes its criteria, however unreasonably. Right?

I think the key issue is that mortgage offers should be binding. A bank should do its underwriting before issuing the offer, and should have only very limited get-out-of-jail cards, like explicit fraud - it should not have the option to re-underwrite and change its criteria. But that's not gonna happen: no bank would ever volunteer to do that as most customers do not understand this risk, and regulators tend to be asleep at the wheel and react mostly AFTER a crisis or scandal, rather than before to prevent one.

AnotherJoe wrote: »

* eg if they accepted and it went wrong she may be held liable so if i was the solicitor I'd decline to work with those clients if they insisted on signing. Maybe YMWV

What do you mean by went wrong? As long a solicitor makes it explicitly clear, in writing, that accepting an exchange conditional on the mortgage would mean the seller does not get to keep the deposit and cannot sue the buyer if the mortgage gets withdrawn for whatever reason, I'm not sure how the solicitor could be liable of what. Especially if this is the price to pay to get the buyer to agree to the unusually long 2+ month-period between exchange and completion.

ACG

Lenders will only usually withdraw an offer in very certain circumstances as you stated in your original post.

As for your comment about pulling out/renegotiating at the last minute, yes that could happen. But it is not you asking for a 2 month delay between exchange and completion. If you do not want to be tied in over Brexit (as mentioned, I fully see your stance on that), then they either need to exchange or take the risk that you may well pull out if property values plummet (for the record, I do not think they will, but what do I know).

The vendors have asked for a long delay between exchange and completion.
You have concerns about it.
You are stressing about a non issue at the minute, tell them you will exchange closer to the time but you are happy to wait. The ball is in their court then to either pull out, insist upon it or accept it. If it is anything other than accept it, you then have some negotiation to do.

AnotherJoe

V_for_viennetta wrote: »

Not applicable to my case, but out of curiosity: does anyone know how it works in chains? Is there any kind of clause that typically gets added, whereby you get your deposit back if it's another party that causes the chain to collapse after exchange? Or, if one party fails to complete, then it's always everyone suing each other and keeping each other's deposit?
Yep the latter is pretty much what happens it ripples down the chain, or up. not just deposit but other costs. You can be wholly blameless and Still be liable but you then apply that Up or down the chain as relevant.


Very true. But the paradox is that an offer conditional on the mortgage would give MORE protection to the sellers; if instead we simply exchange in 2 months and complete after a week, it means I have 2 months during which I could walk away or try to renegotiate the price at the last second. I wouldn't, but they cannot be sure of that.
Well, that's their problem and they can accept or not. But that works within an established legal framework. I do like the idea of contingent upon the mortgage offer not being withdrawn. That keeps it very simple and no gray areas.


OK, I think I see your point now. I am worried about lenders deciding to pull out for strategic / macroeconomic reasons that have little to do with borrowers (e.g. negative outlook on the country, the pound collapsing after Brexit, a Corbyn government etc), while you are saying that there is a huge grey area in which it would be a mess to determine if the offer gets withdrawn because my circumstances have changed or the bank has changes its criteria, however unreasonably. Right?
yes. And the idea (nit sure who posted it) to simply make it contingent upon the offer niot being withdrawn, with no other conditions, might work
I think the key issue is that mortgage offers should be binding. A bank should do its underwriting before issuing the offer, and should have only very limited get-out-of-jail cards, like explicit fraud - it should not have the option to re-underwrite and change its criteria. But that's not gonna happen: no bank would ever volunteer to do that as most customers do not understand this risk, and regulators tend to be asleep at the wheel and react mostly AFTER a crisis or scandal, rather than before to prevent one.
That was my point, you aren't going to change the system.

What do you mean by went wrong? As long a solicitor makes it explicitly clear, in writing, that accepting an exchange conditional on the mortgage would mean the seller does not get to keep the deposit and cannot sue the buyer if the mortgage gets withdrawn for whatever reason, I'm not sure how the solicitor could be liable of what. Especially if this is the price to pay to get the buyer to agree to the unusually long 2+ month-period between exchange and completion.

Unfortunately in today's litigious environment making it explicitly clear may well not be good enough to absolve a solicitor of blame. The solicitor is much more likely to avoid this by nit letting it happen rather than come up with more warnings.
I think either attempting to add a very short and simple clause about the offer not being withdrawn (with no detail about why) , or simply having a longer period before you exchange is the solution.

bpj

I think you are entirely reasonable - I felt exactly the same and had the shortest possible delay between exchange and completion for this reason. I wouldn't agree to 2 months at the best of times, let alone with the increased potential for changes of circumstance afforded by the political situation at the moment.

Personally I would accept your clause with the addition that you would be responsible for any direct costs - i.e. estate agent / solicitor fees, and any associated with breaking a rental contract. I'm sure someone will be able to explain why that's foolish!

trex227

In my 7 or so years working in conveyancing I only know of a handful of times when mortgage offers were pulled after exchange. A couple due to fraud (I assume lying about income) and a couple due to the client taking out additional credit after exchange (including a client who did not realise taking out £30k finance on a car falls under the description of "additional credit" they were warned against taking before completion!).


I think one way to look at it is your personal circumstances are that you require a mortgage for the purchase (not a criticism, I did too) so why should the seller be disadvantaged by your personal circumstances making the chances higher (though only by a minuscule amount) that completion might not occur. After all if they were selling to a cash buyer a mortgage offer being pulled would not be a concern at all.


That being said, given the current political circumstances we find ourselves in, if I was currently buying I would absolutely not accept anything more than a week between exchange and completion. Though if you can get the seller to agree to your proposed clause (which their conveyancer will almost certainly advise them against) and both solicitors will put in the clause then go with it if that satisfies you.

V_for_viennetta

I had a chance to discuss this with a city lawyer at a dinner.

I don't know the details, but this guy works in a big law firm helping companies buy and sell other companies. I asked him what he thought of this, and basically he said:

• in the transactions he works on, it is rare for a company to commit to buying another company without having the financing in place. "In place" means that the lenders must be fully committed and must not have the "get out of jail cards" that a mortgage lender has.
• If these "get out of jail cards" exist, the lawyers must point them out very clearly to their clients; if they don't, the lawyers could be liable for damages.
• He laughed when I said that this (lenders pulling out) almost never happens. He said a good lawyer worries about stuff which happens rarely and stuff which has never happened yet
  
• He concluded by saying that of course a family borrowing to buy a house is not the same as a company borrowing to buy another company, that of course lenders in the letter scenario are way more likely to change their mind etc, but that, still, even if I'm not going to change the system, there is nothing wrong in being aware of a risk, even if it materialises rarely
  

davidmcn

Speaking as somebody who has worked at both ends of the spectrum, what happens in big corporate deals isn't particularly relevant to what happens in residential conveyancing.

V_for_viennetta

davidmcn said:

Speaking as somebody who has worked at both ends of the spectrum, what happens in big corporate deals isn't particularly relevant to what happens in residential conveyancing.

No one said otherwise. The point is not that, the point is that diligent persons know what risks they are exposed to.

It may be that some of those risks (like a mortgage lender pulling out) are very low and there is very little one can do to mitigate them, but none of this means we shouldn't be aware of them nonetheless.

The world is full of stuff no one worried about because it wasn't a problem, until one day, ops, it was.

15 years ago not many people worried about deposit insurance, cladding in newbuilds, leasehold charges doubling too often, etc.

Also, the residential mortgage market is heavily regulated and banks don't want to appear to treat customers unfairly. But there are less regulated corners of the market (eg buy to let, or what's left of it) where this (lenders pulling out) might be a bigger issue.

Thrugelmir

Options are available for people to mitigate their own risk , redundancy insurance being one. Also ensuring that sufficient life cover is in place, if there's more than one borrower.  Easy to say will never happen to me. As statistically it won't. However something happens to somebody everyday. Akin to insuring ones house against fire. 

Chavy89

its been 4 month did you end up buying the place did it all go smoothly ?