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Can’t Finance New Build Flat!

Hello, I’m posting this on behalf of a friend as we are all stumped and at a loss as to what to do…

He purchased a new build flat in Leeds off plan 3 years ago with a 10% deposit. 

He exchanged contracts last year and did not have a mortgage offer / mortgage in principle (he was not asked for any proof of funds by the developer or the solicitor).  In hindsight he’s realised he should never have exchanged without a mortgage but he is a first time buyer and didn’t know.

he’s now applying for mortgages and finding that the development itself is being rejected by the major lenders with them stating ‘confidential reasons’ or one even saying the development was blacklisted. Anyone have any ideas why this is? 

The developers have told him he is likely going to need a specialist lender which comes at the cost of at least another 10% deposit and higher rates (he can’t really afford).

any advice here what his options are? The flat is due to complete next month (longstop is 31st oct) 

Presuming they are unlikely to give his deposit back if he does not complete? 
Anyone had a similar situation and can advise? 
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  • user1977
    user1977 Posts: 13,303
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    Which development is it?

    Doesn't his contract have a long stop date? 
  • eddddy
    eddddy Posts: 16,126
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    AaronS95 said:

    Presuming they are unlikely to give his deposit back if he does not complete? 


    Just to clarify this point - unfortunately, the 10% deposit is probably the minimum he would lose.

    For example, if he doesn't complete, and the developers have to reduce the price by 20% in order to find another buyer - your friend will owe that full 20%.

    So the developer will keep the 10% deposit they already have, and potentially take your friend to court to get the other 10%.

    (Worryingly, if the flats are unmortgageable the developer might have to reduce the price significantly to find another buyer.)


    AaronS95 said:

    any advice here what his options are? The flat is due to complete next month (longstop is 31st oct) 


    In theory, your friend might be able to "assign the contract".

    So for example, if he's agreed to pay £300k for the flat - he could try to sell the contract to somebody else for £300k. i.e. somebody else would then pay the £300k for the flat.

    But again - it's a case of finding somebody who's prepared to pay £300k for an unmortgageable ("blacklisted") flat.

    Or he could try to sell the contract for £290k or £280k - and take a hit of £10k or £20k.


    Or he could pray that the flat isn't finished by 31st Oct so he can walk away. But I suspect the developer will be doing everything they can to avoid that happening.


    AaronS95 said:

    In hindsight he’s realised he should never have exchanged without a mortgage but he is a first time buyer and didn’t know.


    Didn't he have a solicitor - who should have been shouting very loud warnings about this?

    Or did your friend just ignore the warnings - perhaps because the developer told him to?

    Or did he use a solicitor recommended by the developer (who might have been more worried about looking after the developer, than looking after your friend.)?


    If your friend's solicitor didn't warn your friend about this, I guess he could consider a claim against the solicitor for negligence. But I suspect that would be a massively expensive and difficult fight.

    Alternatively, if the developer misled your friend about any material information before he exchanged contracts, your friend could try a claim against the developer on that basis. (Like if the developer said the flats would definitely be mortgageable.) But again, that's likely to be an expensive and difficult fight.



  • Get a mortgage broker and solicitor asap
  • RHemmings
    RHemmings Posts: 3,143
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    AaronS95 said:
    Hello, I’m posting this on behalf of a friend as we are all stumped and at a loss as to what to do…

    He purchased a new build flat in Leeds off plan 3 years ago with a 10% deposit. 

    He exchanged contracts last year and did not have a mortgage offer / mortgage in principle (he was not asked for any proof of funds by the developer or the solicitor).  In hindsight he’s realised he should never have exchanged without a mortgage but he is a first time buyer and didn’t know.

    he’s now applying for mortgages and finding that the development itself is being rejected by the major lenders with them stating ‘confidential reasons’ or one even saying the development was blacklisted. Anyone have any ideas why this is? 

    The developers have told him he is likely going to need a specialist lender which comes at the cost of at least another 10% deposit and higher rates (he can’t really afford).

    any advice here what his options are? The flat is due to complete next month (longstop is 31st oct) 

    Presuming they are unlikely to give his deposit back if he does not complete? 
    Anyone had a similar situation and can advise? 
    I can't provide useful advice over and above what others have done - this is a complicated situation with significant risks and professional advice is needed. 

    There is this information online about the legal situation: https://www.mondaq.com/uk/litigation-contracts-and-force-majeure/1076980/what-happens-if-a-buyer-fails-to-complete-the-purchase-of-a-property  

    I note the following from the above link:

    A seller is entitled to retain the deposit even if the same property is later sold to a new buyer at a higher purchase price. While generally speaking the deposit should reflect the seller's loss, a principle has developed that a 10% deposit is inherently reasonable and will generally be considered to be an acceptable price for the buyer to pay for their failure to complete the purchase. But we are increasingly seeing much larger deposits, particularly with new build properties. It could well be argued that such a deposit is disproportionate and should not be retained by the seller.


    I'm not meaning to imply anything about the legal situation, but just pass on this link.
  • silvercar
    silvercar Posts: 46,743
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    The solicitor should have warned him of the risks of exchanging without a mortgage offer. If he didn’t then the solicitor may have some liability here.

    Assuming that he was warned and accepted the risk, then the developer is clearly going to have an issue if the development is not mortgageable with high street lenders. Unless every property has been sold then the developer still has to market and sell remaining properties, so will be eager to solve the problems. It’s fine to talk of failing to complete etc when you are dealing with one property and one buyer failing to obtain a mortgage, when you have a whole development unmortgageable there is an issue that the developer will need to address. Not least because most FTBs won’t have funds to bridge the gap between current value and initial selling price or to pay higher interest rates. The developer will end up with a bad reputation and/ or face pressure from locals/ the council etc to sort out the issues.

    OP, what are the issues? Cladding or price are the first that come to mind, but it could be a change in the area or a subsidence issue found.
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  • user1977
    user1977 Posts: 13,303
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    silvercar said:
    The solicitor should have warned him of the risks of exchanging without a mortgage offer. If he didn’t then the solicitor may have some liability here.

    Although any mortgage offer back in 2020 would have expired long before now - it's the (presumed) lack of a longstop which is more of an issue.
  • GDB2222
    GDB2222 Posts: 24,330
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    user1977 said:
    silvercar said:
    The solicitor should have warned him of the risks of exchanging without a mortgage offer. If he didn’t then the solicitor may have some liability here.

    Although any mortgage offer back in 2020 would have expired long before now - it's the (presumed) lack of a longstop which is more of an issue.
    Even with the drop in prices over the last year, prices in Leeds are still up quite significantly compared to 2020. Unless he vastly overpaid in 2020, this may not be as much of a disaster as it seems.

    Besides that, what is wrong with the block that makes it 'blacklisted'? Is that sufficient to make it possible to back out of the contract? 
    No reliance should be placed on the above! Absolutely none, do you hear?
  • Tiglet2
    Tiglet2 Posts: 2,456
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    user1977 said:
    silvercar said:
    The solicitor should have warned him of the risks of exchanging without a mortgage offer. If he didn’t then the solicitor may have some liability here.

    Although any mortgage offer back in 2020 would have expired long before now - it's the (presumed) lack of a longstop which is more of an issue.

    OP said longstop was 31st October
  • eddddy
    eddddy Posts: 16,126
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    edited 29 September 2023 at 9:24AM
    user1977 said:

    Although any mortgage offer back in 2020 would have expired long before now - it's the (presumed) lack of a longstop which is more of an issue.

    The OP said the longstop is 31st Oct (2023) - so all the buyers probably expected that completion was 3 years away.

    A bit like this flat:


    It's for the OP to confirm, but I suspect that the friend (and many other buyers) were taking a calculated risk with the mortgage. i.e. exchanged contracts based on these assumptions...

    • 1) "I have a secure well-paid job. I'm confident that I will still have it in 3 years"
    • 2) "The value of the newbuild flat will be even higher in 3 years time, than I am committing to pay today. Which will make getting a mortgage or assigning the contract even easier."
    • 3) "A newbuild flat will be mortgageable without any problem" 

    But assumption 3 hasn't happened - and ,maybe assumption 2 hasn't either.

    I guess the OP's friend should find out more about why the flat has been "blacklisted" for mortgages. For example, is it related to Building Regs issues or Planning issues?  And what does the contract promise about building regs and planning?



    (For example, I suspect flats in this block would be on mortgage companies "blacklists" - due to "planning issues" :
    https://www.standard.co.uk/news/london/greenwich-council-mast-quay-thames-demolished-planning-b1109661.html )


  • user1977
    user1977 Posts: 13,303
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    Tiglet2 said:
    user1977 said:
    silvercar said:
    The solicitor should have warned him of the risks of exchanging without a mortgage offer. If he didn’t then the solicitor may have some liability here.
    Although any mortgage offer back in 2020 would have expired long before now - it's the (presumed) lack of a longstop which is more of an issue.
    OP said longstop was 31st October
    Oops, missed that. In which case, would be interesting to know what advice they got about having a longstop 3 years away.
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