Mortgage lenders reviewing cases after exchange
Mortgage lenders are reassessing some applications after contracts have been exchanged on properties, adding to costs and jeopardising sales, it has been reported.
Conveyancing firm The Partnership said this has happened to a number of its clients since the introduction of the Mortgage Market Review (MMR) in April, which made lending rules tougher.
The company said some of their clients got to the exchange of contract stage of the property buying process, only for their mortgage lender to insist on "reassessing their financial position".
Peter Ambrose, director of The Partnership, said: "In one case this week, we have a client who was due to complete on Monday but has not been able to do so, whilst they wait for the Halifax to confirm that they are willing to lend them the money. Our client has told us that her stress levels are going through the roof, and that she is currently paying a removal company £300 per day to hold all her belongings. Moving house is extremely stressful at the best of times, so this added problem is last thing our clients need."
He added: "We have worked on thousands of conveyancing cases and this is the first time we have experienced a situation where the client's purchase has been put at risk after exchange.
"Whilst we are currently seeing increasing issues with lenders, these are primarily around restrictive behaviours concerning legal representation and quality control problems with incorrect offers being rejected, but pulling mortgages after exchange is highly unusual."
However, other brokers insist that such cases are far from widespread. One told Moneywise: "I have never, in 33 years of trading, had a lender review, amend, withdraw a formal mortgage offer made to a client after they have actually exchanged contracts.
"In the Halifax case mentioned, it would be interesting to confirm whether the application was submitted pre-MMR date of 26 April. But even so, lenders have a three-month 'transition' period to allow all pre-MMR cases to be issued under the 'old rules', although the commercial reality is that most lenders were already applying the new MMR rules before 26 April."
He added: "It could be, that having made their formal offer – and remember that a lender does not get told by the client's solicitor that they exchanged contracts –Halifax underwriters may well have realised they had failed to tick all its underwriting boxes and went back to the clients for further info. This would be odd to say the least, as they have made their formal decision, but most clients do not read the mortgage offer small print which states that the lender can withdraw the offer at any time, and are not obliged to say why (but most do)."
Kevin Gibson, director at Ascot Mortgages, said that another scenario could be that Halifax's re-assessment was down to an audit. Mortgage lenders randomly audit cases at any point between the mortgage application date and the mortgage offer being made. He said around 1% of cases are typically audited.
If internal compliance auditors do a random check and find the paperwork for the case to be incomplete, that would trigger a 'technical breach' which gets noted, logged and notified to the Financial Conduct Authority.
He added that some cases might be re-assessed if the lender uncovers anything potentially suspicious - such as doctored bank statements or payslips that have been used as proof of income.
However, he said: "We have seen lenders re-assess client's financial positions after exchange of contracts in a small number of cases and all have subsequently seen the mortgages go through."
While Halifax doesn't discuss inividual cases, a spokesperson for the lender told Moneywise: "Customers would typically have a full mortgage offer before committing to exchanging contracts. Our offers are typically valid for six months. We are not revisiting these lending decisions due to changes brought about through MMR. We will only revisit them if the customer advises us of a material change to their circumstances or upon expiry of the offer."
The branch of law concerned with the preparation of documents for the buying and selling of property (or remortgaging), always handled by a qualified solicitor. The conveyancing process covers many of the legal aspects of the sale/purchase/remortgage such as land registry, local authority searches, freehold and leasehold status, title deeds and much more.