Mortgages  

28-day contracts exchange should be ‘illegal’ say brokers

28-day contracts exchange should be ‘illegal’ say brokers
 

Mortgage brokers have expressed concern about new build property developers increasingly putting pressure on prospective buyers to exchange contracts within a 28-day period, while no build date has been confirmed.

It is a practice brokers have expressed “bewilderment” at, with some arguing greater regulation of the new build development sector is needed and that the practice should be made illegal.

Brokers have reported that they are seeing a growing number of cases where mortgage applicants’ lose their offers because the property has not been built in time. 

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“This is especially the case now when some mortgage offers that were issued nine months ago at rates as low as 1.39 per cent [are] having to be reapplied for at significantly higher rates, stretching affordability to the limit,” Mike Staton, director of Mansfield-based Staton Mortgages explained. 

“This is completely unfair and the builders should be held accountable,” Staton said. 

In order to exchange contracts, buyers must have a mortgage offer which is typically valid for six months.

However, with mortgage rates rising, buyers are increasingly being put in a precarious position and many risk losing thousands of pounds.

In August, the average two-year fixed mortgage rate reached a nine-year high following the Bank of England’s decision to push the base rate up by a further 0.50 percentage points to 1.75 per cent.

In September, the Bank of England raised the base rate by another 0.5 percentage points to 2.25 per cent, its highest level since 2008.

This coupled with last week's mini-budget that caused the pound to plummet and bond yields to soar, have led to mortgage lenders hiking rates even further and also pulling products.

Meanwhile, the average shelf-life of a mortgage product sunk to a record low earlier this month of just 17 days.

Scott Taylor-Barr, broker at Carl Summers Financial Services, said the new build market and mortgage market are now “deeply out of sync and it's causing chaos”. 

The Shropshire-based broker stated he is seeing many cases like this at the moment where the client’s completion date has been continuously put back by the developer. 

“This is not uncommon at the moment as they are struggling for materials and labour," he said. 

"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."

Self Employed Mortgage Hub founder, Graham Cox said the practice should be made illegal. 

Cox said: “It's made even more egregious by the fact many new build homes are sold to inexperienced first-time buyers. While 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. While the developer, of course, pockets the agreed non-completion fee."