New property Mortgage withdraw after exchange contract

c00114110

Hi Everyone,

I am buying a new property. Got my mortgage approval, paid booking deposit and asking to sign the contract in 28 days. The property should be ready on April next year.

However my solicitor alert me, because there is 4 or 5 months waiting time between contract exchange to close the deal, there is a risk that mortgage withdraw during this time, particular in this uncertain pandemic time. In that case, I won't enable to buy the property and lost my 10% deposit (not booking deposit).

The seller solicitor refuse to change the contract to objective to loan closure. I want to know is this common particular? Does every new property buyer need to face this risk? Does anything I can do to reduce the risk?

Looking forward to hear for you.

Pablo_Flox

I would talk to your solicitor and take their advice. If they don't think that you should sign the contract the way that it is presented then trust them and don't sign it.

I suspect that the Solicitor is highlighting it as a potential risk rather than advising against proceeding, but you would need to speak to him/her and get their professional advice. That is why you pay your solicitor!

When I was buying my solicitor fought very hard to make sure there was a clause that the contract was subject to drawing down the mortgage. If they won't budge on it I am not really sure what you can do...

brisan

Pablo_Flox wrote: »

I would talk to your solicitor and take their advice. If they don't think that you should sign the contract the way that it is presented then trust them and don't sign it.

I suspect that the Solicitor is highlighting it as a potential risk rather than advising against proceeding, but you would need to speak to him/her and get their professional advice. That is why you pay your solicitor!

When I was buying my solicitor fought very hard to make sure there was a clause that the contract was subject to drawing down the mortgage. If they won't budge on it I am not really sure what you can do...

I agree
I would insist on a subject to finance clause

c00114110

Yes, my solicitor is highlighting the risk rather than advising against proceeding.

You bought property before, you knew how hard to get this far. It is hard to us to give up.


I will tell my solicitor insist on subject to finance clause, but are there any other ways to limit the risk?

Does everyone buy new property need to face this issue currently?

Graham

c00114110 wrote: »

Does everyone buy new property need to face this issue currently?

No, it's only some developers that refuse a "subject to finance/mortgage" clause.

If the developer absolutely refuses the clause even after your solicitor pushes for it you either accept the risk or walk away.

Personally, I'd be walking.

awec

Graham wrote: »

No, it's only some developers that refuse a "subject to finance/mortgage" clause.

If the developer absolutely refuses the clause even after your solicitor pushes for it you either accept the risk or walk away.

Personally, I'd be walking.

It's been a common enough point brought up on here for a number of years now, I am not so sure it's just some developers.

Graham

awec wrote: »

It's been a common enough point brought up on here for a number of years now, I am not so sure it's just some developers.

It's common enough, from some developers. Not all, i.e. some.

Some will also accept it if pushed. Again not all, some.

c00114110

Thanks Graham.

I doubt seller solicitor can accept subject to finance clause. Because my solicitor already asked two times.

Graham

Only other option is call their bluff. Threaten to pull out if they won't accept.

Naturally you have to decide whether or not you will pull out.

Graham

There's another thread from another poster in exactly the same situation. Deciding whether they wish to take the risk or not.

That poster managed to get a cancellation so is only looking at 1 or 2 months to completion.

It did make me wonder what the original intended buyer had lost by cancelling.

Thoie

I had the same issue when buying a new house a few years ago - the developers refused to allow a "subject to finance" clause. In my case, they delayed so long I had to reapply for the mortgage, which was nerve-wracking, even though my circumstances hadn't changed. And of course, it meant another round of sending in paperwork.

The mortgage offer probably won't be withdrawn, but it may expire. There's a few stages - Approval in Principle (which lasts a certain amount of time) then the Letter of Offer (which is also valid for a certain amount of time).

If your circumstances don't change, you can have roughly 18 months from getting AIP to drawing down the mortgage.

The main risk, which only you can evaluate, is whether you think your circumstances will change (lose your job, have a baby, something else) between now and April. I would also point out that while some developers may meet their scheduled timelines, if I was buying and they said "April", I'd assume I wouldn't be getting the keys until July.

awec

c00114110 wrote: »

Thanks Graham.

I doubt seller solicitor can accept subject to finance clause. Because my solicitor already asked two times.

If they've asked twice and refused then you are just wasting time asking again.

Your solicitor is doing their job advising you of the risk. Now you just have to decide, either you live with the risk or you pull out.

c00114110

Said, just got call from selling agency, said: developer will not accept any conditions.

brisan

c00114110 wrote: »

Said, just got call from selling agency, said: developer will not accept any conditions.

The decision is your to make
I would take your solicitors advice and walk away

c00114110

Thanks brisan. It is a hard decision.

Pablo_Flox

There are too many unknowns that could happen between now and next summer... I would have a long think about what you want to do; but my 2 cents on it is that it will sting to walk away, but it would sting even more if you end up loosing all your savings.

c00114110

Pablo_Flox wrote: »

There are too many unknowns that could happen between now and next summer... I would have a long think about what you want to do; but my 2 cents on it is that it will sting to walk away, but it would sting even more if you end up loosing all your savings.

Got your point.

My wife and I did nearly a year house hunting, then got this property. Looks like we have to restart the hunting process.

Pablo_Flox

Could you delay signing the contract until January or February? That would make it less risky.

Also, if you do decide to pull out and they then come back to accept the change to the contract; I would also try knock a few thousand off the agreed price! ;-)

Jet Black

Its a hard decision and one that you have to make yourself. Solicitor can only really advise, look at your own circumstances and decide. I went through it too but the risk I took was losing deposit and I could be legally perused for the remaining balance of the house price. Lots of sleepless nights but it worked out in the end.

Thoie

One thing to remember when making the decision, if you're looking at any new build, this seems very common now, so another new build may have you in the same situation.


To be honest, I'm not sure why developers have started doing this. If, for example, come closing time I no longer have mortgage approval, the builder would still be able to sell the property fairly easily with very little delay.

c00114110

Thoie wrote: »

To be honest, I'm not sure why developers have started doing this. If, for example, come closing time I no longer have mortgage approval, the builder would still be able to sell the property fairly easily with very little delay.

Exactly, that is unfair to the buying side. It left a huge risker for buyer (10% of deposit lost).

c00114110

I will have less worried if there is no pandemic. But in current pandemic situation, no one can really predict what happen in next year and plus potential no deal Brexit which add more uncertain to the future.

Dolbhad

Has your solicitor had a chat to their solicitor to see if there can be some sort of condition, even if it’s stricter the standard one the law society recommend recommend?

The one builder in Cork I know who wouldn’t allow the clause was when my partner’s sister was buying a new build in Lehenaghmore, Cork. Her solicitor recommended like you to not proceed but did seem to give the builder’s solicitor and auctioneer a bolloxing over it.

They came to a compromise. She would sign contracts with the subject to loan clause in it. However the builder would not sign contracts with the clause. The clause could only be removed when she had drawn down funds. The risk was there was no binding contracts in place and he could withdraw at any moment (esp if prices increased and he could get more money).

But if builder did withdraw, she got her deposit back. She drawdown funds, builder returned contracts for the HTB and they closed a week later.

Maybe something like that could keep both sides happy?

c00114110

Dolbhad wrote: »

Has your solicitor had a chat to their solicitor to see if there can be some sort of condition, even if it’s stricter the standard one the law society recommend recommend?

The one builder in Cork I know who wouldn’t allow the clause was when my partner’s sister was buying a new build in Lehenaghmore, Cork. Her solicitor recommended like you to not proceed but did seem to give the builder’s solicitor and auctioneer a bolloxing over it.

They came to a compromise. She would sign contracts with the subject to loan clause in it. However the builder would not sign contracts with the clause. The clause could only be removed when she had drawn down funds. The risk was there was no binding contracts in place and he could withdraw at any moment (esp if prices increased and he could get more money).

But if builder did withdraw, she got her deposit back. She drawdown funds, builder returned contracts for the HTB and they closed a week later.

Maybe something like that could keep both sides happy?

Thanks Dolbhad. That is good way to compromise for both party. I try to suggest this my solicitor.

Smouse156

Just as someone that has worked in risk management previously, I have to say it would be a crazy risk to take! If it was a few k then fair enough but if it’s a full 10% then the risk is just too high. Trying to save 10% of a house on Irish after tax wages is a tall ask and if the gamble fails you might never have a house.

As I someone looking to buy next year I’ll definitely be walking unless this clause is put in.

Thoie

c00114110 wrote: »

Exactly, that is unfair to the buying side. It left a huge risker for buyer (10% of deposit lost).

I suppose it's a handy 10% for the builder. If your circumstances change and you have to pull out, they get to keep your 10%, and can then charge a second person full price and pocket the profit. The only loss to them is a few hundred euro for their solicitor to send the paperwork to someone else.

Claw Hammer

Some developers are availing of loan facilities to fund the build which is conditional on having unconditional contracts in place.

awec

Thoie wrote: »

I suppose it's a handy 10% for the builder. If your circumstances change and you have to pull out, they get to keep your 10%, and can then charge a second person full price and pocket the profit. The only loss to them is a few hundred euro for their solicitor to send the paperwork to someone else.

It is incredibly unlikely they'd do this. Clause or no clause, if you pull out you are more than likely going to get your deposit back.

The effect of this clause is overstated at times. The biggest risk to your deposit is the developer going bust, and in that scenario this clause is irrelevant.

brisan

awec wrote: »

It is incredibly unlikely they'd do this. Clause or no clause, if you pull out you are more than likely going to get your deposit back.

The effect of this clause is overstated at times. The biggest risk to your deposit is the developer going bust, and in that scenario this clause is irrelevant.

If that is the case , why insist on the clause if you don’t intend to keep the deposit

Claw Hammer

brisan wrote: »

If that is the case , why insist on the clause if you don’t intend to keep the deposit

The developers financiers insist on it.

Thoie

Claw Hammer wrote: »

Some developers are availing of loan facilities to fund the build which is conditional on having unconditional contracts in place.

awec wrote: »

It is incredibly unlikely they'd do this. Clause or no clause, if you pull out you are more than likely going to get your deposit back.

The effect of this clause is overstated at times. The biggest risk to your deposit is the developer going bust, and in that scenario this clause is irrelevant.

I suppose that makes sense, kind of, but it's another one of those ridiculous areas where the consumer will "probably" get their money back, but "could" lose it all. For most people that 10% deposit is something that they may never be able to replace, or at least not for a very long time.

Another clause in the original contract the builders sent was something along the lines of "if the developer goes bust, you have no claim at all on your original deposit". While people were willing to take the risk on mortgage issue, everyone point blank refused to sign the contracts with that bit in it, and eventually, after a few months, and every buyer's solicitor objecting, that was changed to the deposit going into escrow somewhere. I think as long as some people will chance the mortgage/change of circumstances clause, they'll keep including it.

Dolbhad

awec wrote: »

It is incredibly unlikely they'd do this. Clause or no clause, if you pull out you are more than likely going to get your deposit back.

The effect of this clause is overstated at times. The biggest risk to your deposit is the developer going bust, and in that scenario this clause is irrelevant.

I would not agree the clause is overstated. It’s one of the most important clauses in a contract and came about after the issues of the market crashing.

Most situations the contract deposit is held on trust with the builders solicitor and auctioneer so the builder only gets the money from HTB and revenue can claw that back if builder went bust.

Even if the deposit is released, homebond can cover loss of deposit where builder goes bust so you get that back. You have more security in those situations.

The clause also relates to issues with the valuation should valuations drop.

Claw Hammer

The amount of any deposit made by the Policyholder to a maximum of 10% of the agreed contract price for the Housing Unit.

This is subject to a limit of €30,000 for any one Housing Unit and an aggregate limit of €1,000,000 for any one Developer.

If it appears that the total claims anticipated and paid under Section 1.1 for any one Developer will exceed the limit of €1,000,000, We may, at our discretion, reduce individual claims from all affected Policyholders. This reduction will be calculated by the ratio of total claims to the Limit of Indemnity of €1,000,000 for any one Developer.

Dolbhad

Claw Hammer wrote: »

The amount of any deposit made by the Policyholder to a maximum of 10% of the agreed contract price for the Housing Unit.

This is subject to a limit of €30,000 for any one Housing Unit and an aggregate limit of €1,000,000 for any one Developer.

If it appears that the total claims anticipated and paid under Section 1.1 for any one Developer will exceed the limit of €1,000,000, We may, at our discretion, reduce individual claims from all affected Policyholders. This reduction will be calculated by the ratio of total claims to the Limit of Indemnity of €1,000,000 for any one Developer.

Thanks for that.

When we were looking a new build it was stated in contracts that the deposit would be released up to the amount covered by homebond and the rest would be held as stakeholder by the solicitor. Our solicitor had the condition removed so it was all held by the stakeholder but I didn’t know the exact amounts that were covered.

c00114110

Claw Hammer wrote: »

If it appears that the total claims anticipated and paid under Section 1.1 for any one Developer will exceed the limit of €1,000,000, We may, at our discretion, reduce individual claims from all affected Policyholders. This reduction will be calculated by the ratio of total claims to the Limit of Indemnity of €1,000,000 for any one Developer.

Would you mind to explain this in understandable English?

brisan

c00114110 wrote: »

Would you mind to explain this in understandable English?

If the builder has 2m in deposits held and he goes bust the buyers will only get half their money back
Its 1 million divided by the number of deposits (assuming they all paid the same amount )
Basically pro rata

c00114110

brisan wrote: »

If the builder has 2m in deposits held and he goes bust the buyers will only get half their money back
Its 1 million divided by the number of deposits (assuming they all paid the same amount )
Basically pro rata

Thanks for the explanation. :P

jack842

We had this clause in our contract (new build house in estate of 100 houses) when we bought our house last year. It was in everyone's contract and builders solicitors refused to remove it for anyone. Multiple people tried.

It wasn't a problem in the end for us. I doubt the builder would actually hold onto your deposit if your mortgage approval has issues. But it's your decision to accept the cause or walk away and find another house.

brisan

jack842 wrote: »

We had this clause in our contract (new build house in estate of 100 houses) when we bought our house last year. It was in everyone's contract and builders solicitors refused to remove it for anyone. Multiple people tried.

It wasn't a problem in the end for us. I doubt the builder would actually hold onto your deposit if your mortgage approval has issues. But it's your decision to accept the cause or walk away and find another house.

You doubt the builder would hold on to the deposit
Some builders will hand the deposit back
At the end of the day you are gambling with what could possibly be 3 or 4 years saving for some people and losing any chance of ever owning a home
Yes the odds of getting the money back may be in your favour but it’s still a gamble and you have to take the risk
That’s why a lot of buyers solicitors will not agree to the clause
I know I never would and I have advised my 3 kids the same when they purchased

jack842

brisan wrote: »

You doubt the builder would hold on to the deposit
Some builders will hand the deposit back
At the end of the day you are gambling with what could possibly be 3 or 4 years saving for some people and losing any chance of ever owning a home
Yes the odds of getting the money back may be in your favour but it’s still a gamble and you have to take the risk
That’s why a lot of buyers solicitors will not agree to the clause
I know I never would and I have advised my 3 kids the same when they purchased

Yes it may be a small one but it's certainly a risk. It depends on how badly the op wants the house. If they walk away i'm sure the builder is not going to have much trouble finding someone to take their place. New builds are in demand and the builders know it.

brisan

jack842 wrote: »

Yes it may be a small one but it's certainly a risk. It depends on how badly the op wants the house. If they walk away i'm sure the builder is not going to have much trouble finding someone to take their place. New builds are in demand and the builders know it.

It’s a risk ( no matter how small ) and you the OP will have to decide to take or not to take the risk
His solicitor is doing his job and covering himself by trying to get the clause removed and advising his client

Claw Hammer

You need to look at who is holding the deposit. In some case it is held by someone as stakeholder but not always.

brisan

Claw Hammer wrote: »

You need to look at who is holding the deposit. In some case it is held by someone as stakeholder but not always.

Even if held by a stakeholder if it says non-refundable in the contract then the builder is within his rights to demand the deposit if the purchaser pulls out of the contract
Being held by a stakeholder is only good if the builder goes bust
Bad publicity for the builder but if he has a waiting list for cancellations he may do it

Claw Hammer

brisan wrote: »

Even if held by a stakeholder if it says non-refundable in the contract then the builder is within his rights to demand the deposit if the purchaser pulls out of the contract
Being held by a stakeholder is only good if the builder goes bust
Bad publicity for the builder but if he has a waiting list for cancellations he may do it

There can't be a non-refundable booking deposit. If the buyer pulls out after both sides have signed the contract, the deposit can be forfeit. Builders are also including clause prohibiting assignment so the buyer can't sell on to get their deposit back from a substitute purchaser.

brisan

Claw Hammer wrote: »

There can't be a non-refundable booking deposit. If the buyer pulls out after both sides have signed the contract, the deposit can be forfeit. Builders are also including clause prohibiting assignment so the buyer can't sell on to get their deposit back from a substitute purchaser.

There can be a refundable deposit
Examples can be found if you trawl through the currently buying a house thread ,you will find them
The second post in this thread is an example

poker--addict

You can still recover deposit at this point, correct? I'd be inclined to walk away. There will be other opportunities without the risk.
I guess banks are not helpful on this lead time issue?

Most builders could easily manage this by asking for a bigger deposit or different rules around refunding in exchange for the clause, or a clause where they can also back out as described by another poster.

It has all the hallmarks of the selfishness and arrogance that got developers into NAMA before. Although I acknowledge one poster claims it could be a restriction placed on builder by their financer - but it is still a load of nonsense which does not reflect real life cash position of 99% of people living in the country.

There will be other opportunities without the risk.

Claw Hammer

brisan wrote: »

There can be a refundable deposit
Examples can be found if you trawl through the currently buying a house thread ,you will find them
The second post in this thread is an example

Booking deposits are always refundable. Contract deposits are not, unless by agreement. It would never be the case that a contract will be signed allowing for a change of mind and a deposit refund.

Dolbhad

Claw Hammer wrote: »

Booking deposits are always refundable. Contract deposits are not, unless by agreement. It would never be the case that a contract will be signed allowing for a change of mind and a deposit refund.

That’s correct. The loan clause only can be activated if something outside your control happens that you cannot draw down funds from your bank - it’s not if you change your mind.

hurleronditch

awec wrote: »

It is incredibly unlikely they'd do this. Clause or no clause, if you pull out you are more than likely going to get your deposit back.

The effect of this clause is overstated at times. The biggest risk to your deposit is the developer going bust, and in that scenario this clause is irrelevant.

I think you are very bullish to assume if for some reason you have to pull out of the transaction because your mortgage approval fell through or expired, the developer will just hand you back a sizeable 5 figure sum that legally they are entitled to keep.

Some developers would be socially conscious, and if the development is oversubscribed and the buyer makes enough noise they would likely get it back, but the circumstances which might cause an approval to fall through, job losses, widespread economic downturn etc, are exactly the circumstances which put pressure on property developers so it is very cavalier to assume you’ll get it back.

If this was a few hundred or a couple or grand for a smaller purchase like a car or a sofa I might agree with your stance, but I asssume this is the OP’s life savings you’re talking about.

Browney7

How watertight is your Approval In Principal OP? Can the bank amend the offer between now and when you will be closing (which lets face it, the three people I know who bought a new build in the past 2 years faced a lengthy delay on their initial "move in" date).

If they can alter, Its not even the risk of losing your job or circumstances changing that could scupper you. The banks could offer max LTV ratios, they may be pickier with who they actually give money to, they might stop advancing credit altogether (small risk but there are rumours Ulster Bank are eyeing the exit door for example). In the event the banks dont advance credit to you, I wouldn't see the builder giving back the deposit as it's very likely they'll be in trouble themselves in such a scenario. This isn't to scaremonger or an opinion of what I think will happen but just to be aware of the risks.

Tough decision because if they won't budge and there aren't many new builds in the area, there will likely be plenty more to step in your place.

zootroid

Is the subject to loan clause generally for new builds only? Or all houses?