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What happens if my mortgage offer expires before my new-build property is complete?
When it comes to buying a property, the prospect of a new build can be tempting; a never-been-lived-in house you can really make your own – sometimes custom-made to your requirements.
But with benefits come pitfalls; a common issue that occurs with new builds are construction delays, sometimes resulting in your mortgage offers expiring between exchange and completion.
What is the process when you buy a new build?
When you purchase a new build property the developer will either give you a fixed completion date, or completion will be “on notice”.
Completion on notice means you will not be given a set date of completion when you exchange, but rather your solicitor will be informed when the new build guarantee provider has issued a cover note confirming that the property is structurally sound.
If the construction is delayed beyond the projected date, you are unable to request your mortgage funds because they cannot be released until the cover note is issued – and this is where you run the risk of your mortgage offer expiring.
How to avoid mortgage offer expiration
So, how do you minimise the risk of mortgage expirations, and what are your options if you run into trouble?
Check the expiration term before taking out a mortgage
To minimise the risk from the offset, if you’re buying a new build ensure to find out from your broker or provider how long the mortgage offer is valid for.
Important
All mortgage offers have an expiry date in which you need to complete by, typically between three to six months – although this does vary by lender.
If you or your solicitor has concerns that the expiration term with your selected lender is insufficient, ask your broker to seek out some who have extended offer periods.
Which leads us on to…
Look for a mortgage with a long offer period
If your new home isn’t likely to be completed for a long time, it’s a good idea to do your homework, and hunt around for lenders that provide mortgages with longer offer periods.
While six months is the standard term, some lenders offer specialist new-build products with terms of nine months, others even more. If you’re worried about delays, these longer offers can provide buyers with added peace of mind.
Speak to a self-build mortgage expert to be put in touch with these specialist lenders.
Ask the lender for an extension
If you find yourself in the unfortunate position that you’re unable to complete before your mortgage offer expires due to construction delays, you may be eligible for an extension from your lender.
How to get a mortgage offer extension will vary by provider in terms of expense and how difficult it is to secure. But be aware that the process can be tricky with some lenders, and there is likely to be costs associated.
What’s more, because your financial circumstances can change over time, lenders tend to treat this process as if you’re re-applying. Many will run new credit checks and affordability assessments, and some may even request a new valuation.
Apply for a new mortgage
If your lender refuses to extend the expiry date on your mortgage, it may be possible to re-apply for the same deal or look for an entirely new product – ensure to use a whole-of-market broker to carry out your search if this is the case.
The main problem you may encounter with reapplying is if your personal or financial situation has changed – for example, if your affordability or employment status is different than it was at the time of the original application.
Another risk associated with applying for a new mortgage is that a valuation report will need to be carried out again. While this could work in your favour
if the property has increased in value, it could also go the opposite was.– meaning you may have to fork out extra for the deposit.
There are also the associated fees to consider. But, as you’ve already exchanged with the developer, withdrawing from the purchase means you run the risk of having to forfeit your deposit, and/or the developer could sue you for loss.
If in doubt, speak to an expert
Delays with new builds are common, and it is very difficult to foresee if and how you can expect to encounter any issues.
It’s highly recommended that, before committing to the purchase of a new build, you speak to a whole-of-market broker who has access to the full range of offers available to you and can identify the best product to suit your circumstances.