An alarming story has appeared in the mortgage trade press, highlighting an apparent pitfall in the house buying process that has arisen in recent months.
The Financial Reporter website carries a story of a young Reading family facing a bill of at least £33,000 plus damages following the collapse of their housing chain after exchange of contracts.
It says: “Abdus Saboor and his wife were left devastated when, in the period between exchange and completion, their buyer was told by lender Santander that their mortgage offer was being withdrawn.
“The fact that contracts had already been exchanged meant that all buyers were still obliged to pay their 10 per cent deposit to their respective sellers.
“The Saboors were in the process of buying a £660,000 house, but were selling their own for £330,000 – so their deposit was of course double. They therefore faced the prospect of losing £33,000.”
Saboor is quoted in the piece saying: “The problems started due to the Covid situation, when my buyer’s lender Santander withdrew their mortgage offer on completion day – while we were loading the removal van! We were willing not to ask our buyer to pay their deposit, but our seller insisted on us still paying our deposit. This money is all our savings from the past seven years. Our account’s empty. We are devastated by this – we have an eight-month old baby.”
The implications here are plain and could affect purchases in the future if this develops into a trend. If lenders can withdraw an offer after contracts have been signed, every non-cash buyer in a chain is at risk.
Separately, Financial Reporter suggests the Butterfield Mortgages company has discovered as many as 30 per cent of buyers whose chains have collapsed in recent months, ended up losing their deposits as mortgage offers were withdrawn post-contract.
That would suggest this is not a one-off problem, and is one that could theoretically be made worse for the victims of the lenders if they have non-returnable deposits.
Financial Reporter sums it up this way: “It has been widely assumed by mortgage brokers and homebuyers alike that a mortgage deal in place at exchange cannot be withdrawn before completion. It appears in practice that this is not the case. This means that, for a period of between one and two weeks, all buyers in the chain are entirely at the mercy of every lender involved – any one of whom might theoretically pull out.”
Santander says this kind of incident happens in less than 0.1 per cent of cases and is not linked to the pandemic.
A spokesperson told Estate Agent Today last evening: “It is extremely rare for a mortgage offer to be withdrawn post-exchange, this would only be done in exceptional circumstances to comply with our legal and regulatory obligations, which extend beyond ensuring the mortgage is affordable. While we are deeply sorry for the distress caused to the parties in the chain, the decision to withdraw the offer was the correct one.”