What happens to your Mortgage if the Purchase falls through?

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In November we had a customer where we had applied for a Mortgage, the legal work had been completed and his solicitor had set in motion the process to exchange and had even recommended a completion date.

The vendor then pulled out and there was no information provided as to why, no apology, nothing.

What happens to the mortgage?

The answer to this varies from lender to lender and also how long between the purchase falling through and the offer being issued.

In the example above, we had applied to a specialist lender. Unfortunately they do not have a process in place that allows you to transfer the mortgage to a new property, so that meant we had to apply for a new mortgage. What we did was to submit a new application with updated documents where needed and attached a note for the underwriter to cross reference it with the previous application.

Other lenders take a slightly different approach, some will instruct a new valuation on the new property and just re-assess affordability if the property is more expensive. Others may request additional bank statements/payslips if it has been a month or 2 from the offer being issued.

What happens to the costs incurred?

Generally speaking when buying a home there are 3 main costs that may be incurred before completion:

Valuation Fee – unfortunately where a new property is found, a new valuation fee will need to be paid. Some products include 1 free basic valuation, in that case you have a choice of paying for a valuation on the second property or making a second application in order to get the free valuation, but risk having to pass another credit check. That is something we would discuss with you as a lot will come down to your circumstances.

Legal Fees – In the example above, the solicitors we use offer a kind of guarantee on some costs. If the property falls through and it is not the buyers fault, they will cover some of the costs up to a specified amount. We were able to get a number of new searches on the new property at no extra cost for the customer. However if you do not use a solicitor with this sort of guarantee in place then you would in essence lose the money incurred for things like searches etc.

Broker fee – Our fee is chargeable on full offer of a mortgage so if the sale falls through after the Mortgage has been offered our fee is chargeable. However we would usually be happy to transfer your application over to a new property without any additional broker fees. There are exceptions to that, for example if your circumstances have changed or there is a large gap between one application and the next.

How can we help?

Overall we try to help you to avoid incurring any additional fees where this happens, we have agreements in place with a firm of solicitors we use (although you are under no obligation to use our solicitors), we do our upmost to ensure we do not need to charge any further fees (as with the example above) and we also discuss ways to potentially proevent needing to pay for a new valuation.

It is generally quite an unfair process where the vendor can pull out at the last minute and not really be liable for any of your costs, but that is the process we have in England and Wales. However realistically you are probably going to lose some money where the vendor pulls out quite late in the process.

This is not really something that we discuss in the main as it does not happen often. Generally we just deal with it as and when it happens and try to make the best of a frustrating time.