Mortgage brokers across the UK should be on their guard against an alarming new pitfall in the house buying process, which has arisen seemingly due to the Covid pandemic.
A Reading couple with a young baby are faced with a bill of at least £33,000 plus ‘damages’ following the collapse of their housing chain after exchange of contracts – despite having a secure mortgage themselves. 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period between exchange and completion, their buyer was told by lender Santander that their mortgage offer was being withdrawn.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% 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.
Abdus appealed to Unbiased.co.uk, which helps people find independent financial and mortgage advisers, after reading one of their articles on this issue. He explains, ‘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 Saboors have tried to raise the issue with Santander, but so far have been offered no explanation as to why the bank took the decision to withdraw their buyer’s mortgage offer. Particularly baffling is the decision to do this following the exchange of contracts.
Traumatic as this ordeal has been for both the Saboors and their own buyer, it has huge implications for every homebuyer and mortgage broker in the UK. If lenders can withdraw an offer after contracts have been signed, then every buyer in the chain is at risk. The only person to benefit would be the seller at the top of the chain.
Nor does this predicament appear to be a one-off. Research earlier this year by Butterfield Mortgages suggested that as many as three in 10 buyers whose chains had collapsed, had ended up losing their deposits as mortgage offers were withdrawn post-contract. The Saboors’ case indicates that this is still happening, leaving families’ finances in ruins along with their dreams of home ownership.
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.
The Saboors’ only hope currently is that the government may eventually offer compensation for people in this predicament, just as they have provided money for furlough and other Covid-related costs. Until then, brokers should advise their clients to take extra care, and perhaps try to get contracts worded so that they are not liable if they lose their buyer post-exchange.
‘We need help to bring this out and share it with the public,’ said Abdus. ‘I don’t want anyone else to go through what we are going through.’