Borrowers left high & dry, thanks to mortgage offer withdrawals
Receiving a mortgage offer is a key part of buying a house. Knowing that your finance is in place is one of the crucial stages of the process and it allows buyers to move forward, safe in the knowledge that the money they need is waiting for them.
New rules that came into force in March 2016 were designed to prohibit lenders from withdrawing binding mortgage offers that they had made to borrowers. However, brokers say that lenders are increasingly flouting these rules, leaving homebuyers with no mortgage in place and significantly out of pocket.
Incidences of loan cancellation on the rise
Mortgage brokers have alleged that lenders are acting unfairly to many borrowers by withdrawing their mortgage offers often at the last minute.
The Daily Telegraph reports that brokers say that incidences of loan cancellation are on the rise, leaving borrowers facing huge problems. Not only could they be significantly out of pocket – if they have already paid legal and valuation fees - but they could find themselves embroiled in legal action with sellers if they cannot find another mortgage to complete the purchase.
Industry insiders say that lenders are mainly withdrawing loans due to mistakes they have made themselves during the increasingly complex underwriting process.
Lenders reported to regulator for withdrawing mortgage offers
The withdrawal by lenders of binding mortgage offers is not permitted in most circumstances, after new rules came into force in March 2016.
When borrowers apply for mortgages they are first offered an 'agreement in principle'. They then go through the full application process whereby a lender will check their income and expenditure, their credit history, and their identification before issuing a binding offer. The regulations stipulate that this binding offer must then be honoured by the lender except in unusual circumstances - such as a sudden change in the borrower's income.
However, the Association of Mortgage Intermediaries (AMI) says that this rule is not being observed by all lenders. The AMI, the broker trade body, says brokers started noticing the increase in September 2016.
Chief executive Robert Sinclair says: “Borrowers will have paid valuation fees, commitment fees and deposits, and those may have been lost. If this cancellation happens between exchange and completion, the situation is much more difficult.”
Sinclair says he had reported the issue to the watchdog, the Financial Conduct Authority. It advised brokers and their clients to complain to the lenders and the Financial Ombudsman.
Industry expert Andrew Montlake remarks: “It’s worrying. Offers are meant to be binding and, if a lender has made a mistake, that should be its problem.”
Mortgage broker David Hollingworth told the Daily Telegraph: "The last-minute withdrawal of mortgage offers can happen and to some extent always has. From a buyer's perspective a mortgage offer is normally enough to give you the confidence to go ahead and make an offer. But mortgage offers are not, in fact, bulletproof."