Purchasing a new build apartment and may lose reservation fee due to mortgage offer not received

saajan_12

Do NOT exchange without a mortgage offer in place, especially when there's material points eg affordability and valuation to assess. 

I'd follow two lines of enquiry, whichever works first 
1. Builder - show your progress and the tangible steps towards completion. eg valuation by x date, mortgage offer expected by y, exchange by z, completion very soon after (assuming you're not in a chain). Ask for more time, as theyll take longer if they have to start again. 

2. Lender / broker - are they clear its a new build and treating it as bought off plan? They usually don't perform a physical valuation, and instead just do a desktop valuation and rely on plans + guarantees. If they can't, do consider a new lender - I know the process has been long with this one, but a new one may have a smoother process now that you have more of your docs at your fingertips and if they treat it as an off plan purchase. 

Memzy

saajan_12 said:

Do NOT exchange without a mortgage offer in place, especially when there's material points eg affordability and valuation to assess. 

I'd follow two lines of enquiry, whichever works first 
1. Builder - show your progress and the tangible steps towards completion. eg valuation by x date, mortgage offer expected by y, exchange by z, completion very soon after (assuming you're not in a chain). Ask for more time, as theyll take longer if they have to start again. 

2. Lender / broker - are they clear its a new build and treating it as bought off plan? They usually don't perform a physical valuation, and instead just do a desktop valuation and rely on plans + guarantees. If they can't, do consider a new lender - I know the process has been long with this one, but a new one may have a smoother process now that you have more of your docs at your fingertips and if they treat it as an off plan purchase. 

Thank you for you feedback, really appreciated! I've actually just gone back to the broker with the 2nd point as I wasn't aware of this so really want them to ensure they know it's off plan (which I'm sure they do) and if there's any way we can just do a desktop valuation. I've also took your 1st point on board and contacted another broker today but not sure how much help that will be...

In addition to this, the estate agent who is acting on behalf of the developer responded with the below:

"It’s frustrating you can’t get a formal offer until the valuation is done, but I’d personally take comfort in the fact that you have an AIP and that you’ve got the property priced incredibly well at £288,000. 
There are lower-level apartments priced over £20,000 more than yours, so you really wouldn’t imagine the valuation for your apartment will fall short however this part is completely out of our hands and I can’t make any guarantees to you here. 

In terms of your options, if you were to pull out of the sale at this stage then your reservation fee wouldn’t be refundable. 

If you exchange and then fall into some problems with the lender, then you do have access to a reassignment clause in the contracts which basically means you can re-sell the unit on before you complete on the property. The window for this is tight, as its 2 weeks from when practical completion certificates are issued but based on the price you have achieved, I will be absolutely gobsmacked if you couldn’t find a buyer who is willing to pay more for your apartment than that. I of course would try to help you here wherever possible too. 
To be honest, it’s usually the last 1-2 apartments in a development which is where all the profit sits for a developer, so it is absolutely in their best interest to have the apartment sold one way or another".

What do you make of the above reply? I'm so stressed about the whole situation given they've given me a deadline by 31st March. 

Thrugelmir

At the current time you aren't a proceedable purchaser. The developer may have other interested parties who are. 

eddddy

If you exchange and then fall into some problems with the lender, then you do have access to a reassignment clause in the contracts which basically means you can re-sell the unit on before you complete on the property. The window for this is tight, as its 2 weeks from when practical completion certificates are issued but based on the price you have achieved, I will be absolutely gobsmacked if you couldn’t find a buyer who is willing to pay more for your apartment than that. I of course would try to help you here wherever possible too. 

So just to analyse what the estate agent says above...

• If your mortgage valuer values the flat at substantially less than £288k, and so you can't  get the mortgage you need...

• ... the estate agent would be gobsmacked if you couldn't 're-sell' the flat to somebody else for more than £288k. 

So even though a mortgage valuer says it is worth less than £288k, the EA says you could sell if for more than £288k within a 2 week time window.

Bearing in mind that...

• The new buyer would have to be a cash buyer - because you can't get a mortgage on a reassigned contract

• The new buyer would realise that it's a distressed sale, and that you're facing financial disaster

• You have to re-sell within 2 weeks

... I think it's likely that a new buyer would want to 'take you to the cleaners', and maybe offer you something more like £200k.

If that happened, then you'd be left owing the developer £88k.



To be fair, in the past, some people have made a profit by buying off-plan, and then re-selling using a reassigned contract. But it's super high-risk. And they've probably done it as an investment strategy, rather than through financial distress.

user1977

And if the developer is confident that the flat could now be sold for more than the price the OP offered - why aren't they simply walking away and doing that now? Why would they be keen to be bound into selling at this supposedly bargain price?

Memzy

eddddy said:

If you exchange and then fall into some problems with the lender, then you do have access to a reassignment clause in the contracts which basically means you can re-sell the unit on before you complete on the property. The window for this is tight, as its 2 weeks from when practical completion certificates are issued but based on the price you have achieved, I will be absolutely gobsmacked if you couldn’t find a buyer who is willing to pay more for your apartment than that. I of course would try to help you here wherever possible too. 

So just to analyse what the estate agent says above...

• If your mortgage valuer values the flat at substantially less than £288k, and so you can't  get the mortgage you need...

• ... the estate agent would be gobsmacked if you couldn't 're-sell' the flat to somebody else for more than £288k. 

So even though a mortgage valuer says it is worth less than £288k, the EA says you could sell if for more than £288k within a 2 week time window.

Bearing in mind that...

• The new buyer would have to be a cash buyer - because you can't get a mortgage on a reassigned contract

• The new buyer would realise that it's a distressed sale, and that you're facing financial disaster

• You have to re-sell within 2 weeks

... I think it's likely that a new buyer would want to 'take you to the cleaners', and maybe offer you something more like £200k.

If that happened, then you'd be left owing the developer £88k.



To be fair, in the past, some people have made a profit by buying off-plan, and then re-selling using a reassigned contract. But it's super high-risk. And they've probably done it as an investment strategy, rather than through financial distress.

Yes, exactly as your points mentioned. 

I guess the reason why the EA said it could sell for more was because it was originally listed at £301k as an investor purchased quite a few apartments so gave them a good rate. However, they had to drop this one apartment so kept it at the price point for 2 weeks before it would have went back up in which I purchased once I received the AIP. 

- On the reassignment clause, can someone not have an AIP already and come in and purchase? 2 weeks is very tight so again, another tight situation.

I've spoken to another broker who told me to call the lender directly as my current broker are non-responsive and not helpful at all. I'll explain the situation to the lender and understand what needs to be done, what's left and if there can be any movement on the valuation to a physical valuation. I guess I would know more on Monday...

Thanks for you help, appreciate it!

Memzy

user1977 said:

And if the developer is confident that the flat could now be sold for more than the price the OP offered - why aren't they simply walking away and doing that now? Why would they be keen to be bound into selling at this supposedly bargain price?

I guess it comes down to it's original price along with many of the other apartments was £301k. However, an investor purchased quite a few so gave it to them as a cheaper deal but they had to drop one so offered it at the same price point which I took advantage of once I received the AIP. 

Slithery

Memzy said:
- On the reassignment clause, can someone not have an AIP already and come in and purchase?

No. You can't use a mortgage for a reassigned property.

Memzy

Slithery said:

Memzy said:
- On the reassignment clause, can someone not have an AIP already and come in and purchase?

No. You can't use a mortgage for a reassigned property.

Oh wow, so they failed to mention that point. Perfect, thanks for clarifying, that will be one of my arguments going back to them then...