Mortgage offers expiring prior to completion?

Baffled · 10th February 2010, 14:07

I'm baffled as to how people are managing to get round this aspect? Charles Church are expecting us to exchange immediately, but not complete for another 10 months or so. How do people mitigate the risks of this?

When you apply for a mortgage, a valuation is carried out on the property, so that the lender is happy with the security. If one mortgage offer lapses, surely you have to go through all this process again? What if, following exchange of contracts, a 2nd valuation is carried out, and the value of the property has dropped, so that you can no longer get a mortgage for the right amount? Surely this is a massive risk at the moment when the housing market is so fragile?

What if you lose your job and can no longer get a mortgage? But still have to complete? Where do people get the money from?

Can anyone help me? Neither lenders nor mortgage brokers are able to suggest a work-around. They all advise against bearing this risk. So why do people still do it?

clared112 · 10th February 2010, 14:46

You are completely right... but the bottom line is the builders dont really care. Anyone who buys a new build, unless they are cash buyers, will have the risk of not being able to get a mortgage or have it extended. Even if completion is within the initial 6 month mortgage offer the build can still run over. This is the exact problem i had, my mortgage ran out at the end of november '09 and i was due to move at the end of October '09 the date then changed to mid nov, then december then jan '10 and then Feb then March and i believe it is still changing. This was a rare case as the building had some substantial structural defects. But as you say a mortgage offer will not last forever, i was able to have the offer extended twice but it was highly unlikely it would be extended a third time.
I was lucky in that, due to the condition of the building and the amount of complaining i did and writing to the press, Bett got sick of me and let me pull out. As i say this is rare but there is also a risk of the build running over.
What some builders will do, which my parents did with their purchase, is get your solicitor to include a clause in the contract stating that if the build is not complete by a certain time you can resile. Again it is rare that they will do this and it's all about being reasonable. I wanted a similar clause written in my contract for February '10 (4 months extra) but Bett would not allow it. its a long shot but worth a go. Also speak to your financial advisor again and ask what the likelyhood of the mortgage offer being extended is, if it is required. Depending on how much business the advisor brings to that lender they can normally be quite good at finding these things out.

But really it is a risk, sometimes it pays off other times it does not. It is nothing but a waiting game. The only party who is protected is the builders.. and they know it....

Baffled · 10th February 2010, 19:07

Thanks Clared112 - I'm sorry to hear about your utter nightmare - sounds you're like you're best off out of there!

I can't believe that people are willing to risk everything for the sake of a house! It's bad if you're promised a completion date and it slides back such that you lose your mortgage - people are exchanging contracts on the back of wishes, not binding promises.

It's bad too if you exchange contracts safe in the knowledge that your mortgage won't cover you for actually buying the house. Why on earth would anyone do that? If this site has taught me anything, it is to not pin hopes and dreams onto the flimsy build of a new home!

Well apparently there are people queuing up to buy our house, so good for them. They're welcome to it and the crazy risks!

clared112 · 11th February 2010, 11:57

Your right it is mad that people will risk everything, I'm doing it. I must be crazy to go through it all again. Builders are sly things are cover themselves in every way possible. Like Tony has said before, they don’t even have to comply with the sales of goods act.. You are only covered by common law. As soon as you sign your missives they have you by the short and curlys. You’re paying out for a home that’s not even built.
Lenders look at new builds differently to ‘second hand’ properties, you can see this by the % they will lend against a new build and what they will lend against older properties.
Also I think builders offer tempting incentives like part exchange, shared equity and offering a builder’s deposit. This is very attractive to first time buyers with little or no deposit and no where to sell… or even people who are having trouble selling their house.
There is also the problem if you sell your home and have an exchange date for it; you are bound to that date. If you delay it you will incur penalties. If you are then due to move into a new build and it is delayed, you effectively have no where to live.

CoolBeanz · 16th February 2010, 21:52

Many people did this before building even started during the boom years. People wrongly believed the worse that could happen is for them to lose their deposit, which is what happened during the boom years as the developer got the buyers 10% (or whatever) and then could sell at a higher price due to the rising market.

I had the same dilemma when I bought, however the house was well on it's way to being built. I agreed with the sales director a back stop date (the date it must be completed by) 2.5months after it was built, however the builders solicitors never put the clause in the contract and my [stupid] solicitor never looked for it. It was only when I read the contracts I asked about it - their solicitor then said it would delay it by another two weeks if I demanded it, and their was huge pressure to exchange. By that point the house was basically complete (awaiting decoration, garden etc), so I exchanged without a back stop date anyway.

If I were you I would only exchange with a back stop date, and try to find a mortgage where the offer is longer. Most are 6months, however when I was ringing to check the length of the offer most mortgage lenders said it was not a problem if it needed extended. My worry was the market would plunge again... or all the banks would go bust...

Alternatively, you could give them an alternative to match any future downvalution. But I dare say they would say no.

CoolBeanz · 16th February 2010, 21:55

Oh, another thing people don't realise is this 28day exchange is 28days from when your solicitor receives the contract, not the date you sign the reservation. It took me 2.5weeks to instruct my solicitor due to doubts at the time!

Kyrae · 9th March 2010, 13:18

The simple answer is, ask your solicitor to put a clause in your contract with the builder saying that should your mortgage offer expire or be withdrawn, and you cannot find a new mortgage, then you can pull out with no penalties. Our builder agreed to it, no problems.

Baffled · 9th March 2010, 15:26

Hello - thanks for the suggestion but we tried that and Charles Church were having none of it. We have a standard contract or we don't have one at all was their explanation of the matter. Well done for getting it included on yours though - may I ask who the developer is?

Kyrae · 9th March 2010, 22:30

We bought from Barratts.

Helebaby19 · 25th January 2011, 20:14

Quote:

Originally Posted by Kyrae

We bought from Barratts.

Kyrae did they accept that clause no problem??? I have reserved a new build from barratts, due to be completed in may or June but if there's any more adverse weather may overrun. Given that mortgage offers are valid for 6 months max and rates are going up by the day - if I have to get another mortgge rate if property not ready working 6 months- may not be able to afford the higher rate! Putting in said clause would solve the problem.