Early Exchange of Contracts - Need some guidance

fragilecliche

Hi,

My husband and I are first time buyers and would appreciate a bit of insight into our current situation.

After months of searching, we have found a house we love and have put in an offer over the weekend, which has been accepted. When it was accepted, we were told by the agent that the buyer was buying a new build (which we knew) with an estimated completion date of Spring (April - May), which was something we were aware of from the vendor and works for us as we are currently in rented accommodation with a contract that comes to an end in May. What the estate agent then went on to say, was that because it's a new build, they will need to exchange contracts late January.

This is all completely new to us - is this fairly standard with new builds? As I said, we don't mind a wait, but our big concern now, is that of our mortgage application is successful and only runs for 6 months, then there are delays in the building process, where do we stand if we have exchanged contracts so early on in the process and our mortgage offer expires? The vendor has already had one buyer pull out as they were concerned about timescales and had a chain that couldn't hold, but I'm starting to wonder if this is the real reason why.

We love the house and really don't want to miss out, but equally don't want to exchange contracts, have a mortgage offer expire and then be stuck in a place where we can't fulfil buying.

Any guidance would be greatly appreciated!

themainman84

Hi there,

first of all, new builds very rarely complete on time. I personally wouldn't entertain exchanging that far in advance without some form of protection, e.g putting a clause in the contract that says if mortgage offer expires and you can't get another deal then they can't come after you for a deposit.

essentially, once you've exchanged you are committed to buy the house and if you were to pull out you would lose your 10 percent deposit. If the worst were to happen and you lost your job, had a significant change in circumstances ie god forbid one of you passes away or becomes critically ill, you would still be on the hook for the property and would stand to lose deposit as well as legal fees etc. This can be life changing.

Also, have they said that want to complete on notice? That means that there isn't a fixed date for completion and that they can give you ten days notice to complete when there house is ready (this is fairly common for new builds but can be a pain for you if your vendor is buying a new build. 

I was in a situation where they wanted to complete on notice and I insisted on having a set date on the contract as I would have been taking on all the risk. This would have meant that if the new build wasn't ready they would still have to complete and either stay with family or go into rented. Not everyone would be willing to do this. I had 8 weeks between exchange and completion and I was very nervous with that time frame. 

Sorry if this seems doom and gloom but I just want you to be fully aware of the implications. 

Essentially the longer the period between Exchange and completion the nighter the risk to you.

insist on a fixed date on the contract and if they will not budge on that then at least ask for a long stop date (this is the maximum period of time eg 6months that the seller has to complete and if it's not done so then you have the option to pull out penalty free) 

hope this helps and best of luck 

themainman84

I will add that it is fairly common for them to ask for an early exchange as the developers want to lock in buyers ASAP, if exchange isn't done in time then they will happily cancel the deal and keep the small deposit that your vendor will have put down.

But... by no means is this your issue

Thrugelmir

Speak to your choosen conveyancer about long stop clauses in the contract. In essence these will allow you walk away in certain circumstances. No need to panic. 

MWT

fragilecliche said:

...which was something we were aware of from the vendor and works for us as we are currently in rented accommodation with a contract that comes to an end in May.

Check your options to extend, odds are the new build will not be ready for them to move in before you have to move out...

The alternative as mentioned above is set a hard date for your purchase to complete regardless of the state of their new build so they will be the ones looking for a solution, not you.

fragilecliche

Thank you so much, this is all really helpful information and was exactly the kind of things going through our head, but just needed some guidance in best approach.

We haven't got to the point of choosing conveyoncer/applying for a mortgage yet and in this case would rather cut our losses now than risk losing a lot of money prior to exchange of contract, or even worse, after this. 

Think we're going to try and get some more information about their position with the contract tomorrow and if they're willing to set a fixed date on the contract, or if they need to leave it open. 

Fully aware new builds rarely complete on time, it's a key part of why we're so worried, particularly with such an early date for exchange of contracts - what we don't want to do is end up with a mortgage agreement expiring and/or a change of circumstances. The rental thing isn't as much of an issue as fairly confident our landlord would be happy to move down to a rolling month contract and worse case scenario we have other possible options. 

We're putting £90,000 deposit down - I'm assuming we would lose all of this? It just feels like too much to risk...

themainman84

fragilecliche said:

Thank you so much, this is all really helpful information and was exactly the kind of things going through our head, but just needed some guidance in best approach.

We haven't got to the point of choosing conveyoncer/applying for a mortgage yet and in this case would rather cut our losses now than risk losing a lot of money prior to exchange of contract, or even worse, after this. 

Think we're going to try and get some more information about their position with the contract tomorrow and if they're willing to set a fixed date on the contract, or if they need to leave it open. 

Fully aware new builds rarely complete on time, it's a key part of why we're so worried, particularly with such an early date for exchange of contracts - what we don't want to do is end up with a mortgage agreement expiring and/or a change of circumstances. The rental thing isn't as much of an issue as fairly confident our landlord would be happy to move down to a rolling month contract and worse case scenario we have other possible options. 

We're putting £90,000 deposit down - I'm assuming we would lose all of this? It just feels like too much to risk...

It's generally 10 percent of the total cost of the property 

fragilecliche

Ok, thank you. Still an awful lot!! 

Thrugelmir

fragilecliche said:

We haven't got to the point of choosing conveyoncer/applying for a mortgage yet 

You've made an offer and it's been accepted. The vendors are going to expect you to apply for a mortgage and the EA likewise for you to name a conveyancer. It's a common situation as thousands of people buy new builds every year. Your conveyancer is your protective angel it's their role. 

fragilecliche

Thank you, I know. We only made offer on Saturday, which was accepted late Saturday afternoon, so been very to follow anything up over the weekend.

Had the AIP prior to this, just want to ensure we're asking all the right questions at the right times.

Hovblackctr

We were in the same position, it is only the 10% deposit that gets taken as a holding amount.

What you might not realise is that you have to insure the property you are buying from the date of exchange, just in case anything happens to it in that interim period.