Brokers have expressed their concern about new build property developers increasingly putting pressure on prospective buyers to exchange contracts within a 28-day period yet with no completion date being set.
Quite often, the applicant’s mortgage offer then expires and they’re suddenly paying through the nose – or can’t afford the mortgage full stop, leaving them “out of pocket due to the exchange and out of home”.
Mike Staton, director of Mansfield-based Staton Mortgages: “We are currently seeing a growing number of cases where new build developers are putting pressure on clients to exchange contracts within a 28-day period, yet with no completion date being set. Quite often, the applicant’s mortgage offer then expires putting them in a highly precarious position and potentially at risk of losing the property and the deposit made at exchange. This is especially the case now when some mortgage offers that were issued nine months ago at rates as low as 1.39% are having to be reapplied for at significantly higher rates, stretching affordability to the limit. This is completely unfair and the builders should be held accountable.”
Graham Cox, founder of the Bristol-based broker, SelfEmployedMortgageHub.com: “This kind of dodgy practice should be made illegal. It’s made even more egregious by the fact many new build homes are sold to inexperienced first-time buyers. Whilst an exchange many months ahead of completion is great news for the property developer, it potentially leaves the buyer on the hook for thousands of pounds. They could find themselves with a new, much more expensive mortgage offer, which ends up being unaffordable. The developer, of course, pockets the agreed non-completion fee. These unethical developers should be named and shamed.”
Lewis Shaw, founder of Mansfield-based Shaw Financial Services: “New build developers are causing countless issues with their demands to force people into exchanging contracts within four weeks before putting as much as a shovel in the ground. To be able to exchange, buyers must have a valid mortgage offer, which is typically valid for six months. Problems arise when developers keep pushing back completion dates due to hold-ups in the build, often meaning that mortgage offers expire. This has the knock-on effect that, as brokers, we either have to extend the offer or, due to mortgage product end dates, pick an entirely new deal. A year ago, that wouldn’t have made much difference. However, now that rates are shooting up mortgage offers that were at sub-2% prices are now almost double and close to 4%, coming as a big shock to buyers. Before they’ve even started their mortgage repayments, they’re being hit with rate shock at precisely the worst time. Worst of all there’s a chance they will no longer be able to secure a mortgage at all, meaning they’re out of pocket due to the exchange and out of home. It’s an issue that urgently needs addressing.”
Jamie Thompson of Manchester-based Jamie Thompson Mortgages: “What new build developers can get away with in this country is bewildering. There’s a simple solution to this though: at exchange, a completion date must be set. If the developer is not able to hand over a signed off property by that completion date any costs that are incurred by the buyer, such as rent, increased mortgage interest if the mortgage offer expires and storage of belongings, must be paid for by the developer. If that happened, they’d soon get their act together. The whole set-up right now is geared towards the developers and can leave buyers out on a limb.”
Scott Taylor-Barr of Shropshire-based broker, Carl Summers Financial Services: “I have a case like this on my desk at the moment. The client’s completion date has been put back, put back and then put back some more by the developer. This is not uncommon at the moment as they are struggling for materials and labour. However, in a market of rising interest rates this means that lenders are in turn struggling to maintain the rates previously offered to borrowers. The new build market and mortgage market are now deeply out of sync and it’s causing chaos. We’re seeing build times that are far longer than many mortgage lenders are now able to hold applications and offers open for, which is a problem when builders are still insisting on exchange 28 days after reservation, even when they don’t think they will have the property built for nearly another 12 months.”
Imran Hussain, director at Nottingham-based Harmony Financial Services: “This issue of exchanging contracts with no actual completion date in sight is extremely detrimental to prospective buyers. I have personally had clients who have had to wait over nine months for a new build to be completed, and in that time, the mortgage product they originally had has doubled, hitting affordability for six and threatening the purchase. Exchanges should only take place when the property is built and when the transaction is near completion, just like a regular house purchase. Some form of regulation needs to be brought in for new build developers as currently they are a law unto themselves and are treating buyers with contempt.”
Rhys Schofield, Managing Director at Peak Mortgages and Protection: “This is a real and growing issue. There is no way in my opinion that anyone should be exchanging contracts on something with no build date confirmed. Aside from the fact that in nine months we have seen rates triple, the cost of living crisis also means that lenders’ affordability calculators have got stricter so a client may well have exchanged contracts on a transaction that now no longer fits on affordability. Not being able to complete has serious financial implications for the customer once exchanged, whereas the builder just gets to sell to the next person. That just doesn’t seem fair to me.”