Buyer involving his company in house purchase

Jewelscollectingdust

We have sold our house ( subject to contract) and are almost at the end of conveyancing process with our solicitor asking for exchange dates

Our buyers have signed paperwork today at their end

We are due to sign in a couple of days

But today things took a slightly worrying turn

We have been advised that despite signing today the buyers need time to sort out mortgage paperwork

When accepting their offer we were told that they were not in a chain because they were not selling their own house

We were told at outset a mortgage to buy our house was required and they were also raising a mortgage on their own house

We didn’t see it as an issue - and assumed estate agent to have vetted they had ability to buy so let it move forward

But then today we’ve been told that exchange being held up because buyers funds generation require them selling their house to their own company - and it needs a few days to sort paperwork

Is this normal ? Or something we should be feeling worried about

The sales progression girl from our estate agents says it’s the first she has heard of this happening

I am worried on two counts

Either they don’t raise the required funds or they raise lower amounts than they assumed they could

peteuk

Your house isn't sold. You've agreed in principle to sell to the buyer at an agreed price. At this point the property is usually taken off active marketing while solicitors handle conveyancing, surveys, and mortgage arrangements, but either party can still pull out without penalty.

At any point the buyer or yourself can pull out of the sale, its only when contracts are exchanged and a completion date is set, after this, anyone pulling out will face a penalty.

So as for your buyers mortgage, regardless of the timeframe, there is still other issues you will need to face before the point of contract exchange.

poseidon1

https://forums.moneysavingexpert.com/discussion/6680099/buyer-involving-his-company-in-house-purchase

This would certainly concern me enough to almost certainly pull out of the deal and remarket (as indicated you have not actually sold until contracts exchanged).

A buyer finding out at the last moment he has to sell his residence to his own company to fund the purchase of your property, was clearly not in a position to buy from you in the 1st place and a scenario very much out of the ordinary.

If the estate agent knows the name of the company, my own due diligence would be to look up his company at Companies House ( online), and check the liquidity ( or otherwise) of the company from the last published accounts. I would also check that buying property is one of the objectives the company is accustomed to doing.

mlz1413

It does sound odd. And agree with above you should get some details to do your own checks. Companies House will let you check buyers name and show which companies he is associated with and check a company name and show who is a director and PSC.

You could continue with the sale but say that you want to re-market as you feel there is significant doubt over the ability to complete.

eddddy

Jewelscollectingdust said

But then today we’ve been told that exchange being held up because buyers funds generation require them selling their house to their own company - and it needs a few days to sort paperwork

Are you sure this is a last minute change of plan, as opposed to the final step of the plan the buyer had all along?

If I were in your position, I'm not sure I'd expect a buyer to tell me that level of detail.

For example, if the buyer said "I'm keeping my current property and getting a mortgage on it"…

… I'm not sure I'd feel aggrieved if the buyer later clarified "I'm transferring the property to my company and getting a mortgage on it"

People sometimes transfer property from personal ownership to company ownership for tax reasons. It may be a brand new company specifically created for that purpose.

It might be because the buyer took tax advice during the conveyancing process, and decided to form a company.

I wouldn't regard that as a chain.

(And if it's an estate agent that told you this, it's very possible that the estate agent doesn't really understand this kind of stuff.)

Jewelscollectingdust

I think I was asking questions here as this seems a bit out if the ordinary and I wasn’t sure whether to be worried or not

We are so far into the process that a knee jerk reaction like pulling out or remarketing right now doesn’t seem a sensible option - rather I guess we probably just need to let it play out and see what happens

Yes there was information during the early part of the proceedings that a mortgage was being raised on buyers own house plus the bigger mortgage required for him to purchase ours - so we were aware buyer was doing two mortgages - just not the bit about his house being sold to own company as part of that process - that nugget was released today

I never thought of trying companies house as a check but it might be an interesting option to try - thank you

My understanding is Both stamp duty and possibly capital gains would be due up front on transaction done this way plus higher mortgage interest rates - so I can’t get my head around why someone would want it done that way - the expenses seem huge - unless I’m missing something my only conclusion is - no other option

Are there any positives for financing in this way ?

I am told our buyer is a property developer - so wondered if maybe something happening in background we have no knowledge about that could be linked ? - or whether this was a normal tactic for a person flipping houses for a living

mlz1413

If flipping for a business I would have thought the property would be business owned from the start, but people don't always make logical decisions.

I wondered if the house was being turned into a buy -to- let. Putting these through a business is now a favourable option tax wise, maybe it also gives better loaning options.

GrubbyGirl_2

Regardless of the reasons the buyer is giving for delay you say they are only asking for a few days to complete the paperwork I can't see any reason why you would pull out at this point. If you put it back on the market and found a new buyer tomorrow it would still likely be many more weeks before you're ready to exchange. How they are managing their own finances is up to them and shouldn't be your issue if it enables them to complete the sale. It sounds like your solicitor is not unduly concerned and maybe what they are doing is avoiding the additional 5% stamp duty that comes with buying a second home.

gwynlas

It sounds as though the buyer is remortgaging current property as a buy to let.and either already has a limited company or is in the process of setting one up which only takes a short time.

Contracts have ben signed but not exchanged so it is up to you if you wish to put a time scale in place.

Personally I do not think this is a big deal and whilst unusual many people have made their entry into being a landlord by letting first home whilst moving on.

user1977

I also don't think this is any particular cause for concern.

silvercar

There are tax advantages of letting a property through a company rather than an individual, particularly when a large mortgage is involved. So I can see the advantage of your buyer doing this. You have nothing to lose by waiting the few days they say it will take.