New-Build Purchase Process Query

[romeogolf]

Hi all

We've reserved a new-build house and expect to exchange contracts around 6 months before completion. As such, knowing roughly what our mortgage will be in 6 months time taking into account our repayments, have set aside money required to make up the difference between our new mortgage and the equity which will be available in our current home at that time based on the agreed sale price.

Our conveyancers have since told us that they can only take the value on our mortgage statement as it is "now", so we will need to provide the additional £4000 to them in order to exchange. This is a not insignificant sum of money and I'm slightly frustrated that we're expect to provide these funds for them simply to be refunded to us in 6 months time, when this is money we had planned to use for other moving costs and unexpected fees that always seem to pop up when moving home.

Have I misunderstood the process/our conveyancer given poor advice on this? I'm not sure if this is a normal procedure or if I should be calling back and being firmer on this.

Thanks!

[jonwm]

romeogolf said:

Hi all

We've reserved a new-build house and expect to exchange contracts around 6 months before completion. As such, knowing roughly what our mortgage will be in 6 months time taking into account our repayments, have set aside money required to make up the difference between our new mortgage and the equity which will be available in our current home at that time based on the agreed sale price.

Our conveyancers have since told us that they can only take the value on our mortgage statement as it is "now", so we will need to provide the additional £4000 to them in order to exchange. This is a not insignificant sum of money and I'm slightly frustrated that we're expect to provide these funds for them simply to be refunded to us in 6 months time, when this is money we had planned to use for other moving costs and unexpected fees that always seem to pop up when moving home.

Have I misunderstood the process/our conveyancer given poor advice on this? I'm not sure if this is a normal procedure or if I should be calling back and being firmer on this.

Thanks!

I moved in Covid (June 20) but purchased a new build in the January, I was given incentives to use the developers Financial advisors and also legal team to "speed things up" I didn't bother with either as both were asking for money up front and the mortgage rates on offer were terrible, ended up using my own and didn't pay any significant monies until we competed and moved (sameday).

Might not be relevant for your situation but I wouldn't be happy paying that up front, are you using your own solicitors or the developers?

[romeogolf]

jonwm said:

I moved in Covid (June 20) but purchased a new build in the January, I was given incentives to use the developers Financial advisors and also legal team to "speed things up" I didn't bother with either as both were asking for money up front and the mortgage rates on offer were terrible, ended up using my own and didn't pay any significant monies until we competed and moved (sameday).

Might not be relevant for your situation but I wouldn't be happy paying that up front, are you using your own solicitors or the developers?

We're using solicitors recommended by the developer, but the developer themselves are using another firm (our contract details show their solicitor as someone entirely different to ours etc).

We're part-exchanging our house, having been offered market rate for it, so the incentive is that we don't pay agency fees on the sale and there's no chain. We also know based on that how much equity we'll have come October when we're due to complete. It's the difference in our outstanding mortgage today and what it will be in October which our solicitors have so far said they'll need in order to exchange.

Like I say, if we were expecting to complete in the next few weeks that's fine, but with 6 months to go you'd think a common sense approach would be that our mortgage will clearly decrease in that time and we'll have more equity to put towards the transaction.

[Sarnie]

romeogolf said:

Hi all

We've reserved a new-build house and expect to exchange contracts around 6 months before completion. As such, knowing roughly what our mortgage will be in 6 months time taking into account our repayments, have set aside money required to make up the difference between our new mortgage and the equity which will be available in our current home at that time based on the agreed sale price.

Our conveyancers have since told us that they can only take the value on our mortgage statement as it is "now", so we will need to provide the additional £4000 to them in order to exchange. This is a not insignificant sum of money and I'm slightly frustrated that we're expect to provide these funds for them simply to be refunded to us in 6 months time, when this is money we had planned to use for other moving costs and unexpected fees that always seem to pop up when moving home.

Have I misunderstood the process/our conveyancer given poor advice on this? I'm not sure if this is a normal procedure or if I should be calling back and being firmer on this.

Thanks!

Am I reading this right? You stated your deposit was X amount. But this was based on the equity coming from your property once your balance reduced whilst waiting for your property to be built? And are now asking you to provide the funds?

If so, thats pretty normal.

What has your broker said? Because I would have been telling that client that they needed to evidence the full funds of the deposit at the point of application, not what the equity amount would be in the future....

[C Lee Farquar]

Solicitors like to have the funds from you available to complete but it is not a legal requirement.

I've exchanged on a new build with a £300 deposit and no mortgage offer.

[romeogolf]

Sarnie said:

Am I reading this right? You stated your deposit was X amount. But this was based on the equity coming from your property once your balance reduced whilst waiting for your property to be built? And are now asking you to provide the funds?

If so, thats pretty normal.

What has your broker said? Because I would have been telling that client that they needed to evidence the full funds of the deposit at the point of application, not what the equity amount would be in the future....

You're reading it half right, but yes, we know how much equity will be in our house in 6 months time and the balance of that is the figure we anticipated sending to our solicitors to exchange. They have said we will also need to send them an additional £4k to cover the difference between this and our current mortgage value.

We can easily evidence that we have the funds because they're sitting in our savings account (and are shown on statements we've sent to the solicitors).

I'm asking if this is normal because I'm not strictly comfortable with £4k of my money sitting in their account for 6 months, just to get it back again in October. With each month that passes £600-odd comes off our mortgage balance and that's money which we could be putting towards other moving costs, ordering furniture, etc etc. All the bits that come with buying a new home, but if it's sitting in their account we can't, which means we have to wait until we've moved to do all those things.

If we were completing next month I could understand it, and if there was no evidence the money existed on our bank statements I could understand them querying how we could afford to complete, but it seems very "computer says no" to expect our money to sit in their account for such a length of time.

If it's normal then we may just have to lump it, but it's mighty frustrating.

[Sarnie]

It's normal, you have to fulfil your deposit requirements at the outset, not on completion, otherwise the solicitors can't exchange contracts in good faith.

However, your first mistake was using the solicitors recommended to you by the builder. No matter what they say, they are their mates who will have an agreement that states they will ensure they hold the necessary clients funds on account on exchange on contract in case you pull out further down the line......

[superlightr]

i would also say how do you know you are getting market value for yours if its not been put on the open market?

[C Lee Farquar]

Sarnie said:

It's normal, you have to fulfil your deposit requirements at the outset, not on completion, otherwise the solicitors can't exchange contracts in good faith.

Is this what they prefer or a legal requirement, though?

I've exchanged three times without lodging sufficient funds to complete, but in all cases I knew the solicitor and it was pre 1995.

In either situation the OP will only have sufficient funds if he makes sufficient mortgage repayments in the six months between exchange and completion, so the good faith isn't very watertight.

Perhaps the more overriding concern for the conveyancer is that they end up completing with insufficient funds to cover their fees?

[romeogolf]

superlightr said:

i would also say how do you know you are getting market value for yours if its not been put on the open market?

We had two agents value it before deciding to look into the part-exchange offer and another identical property sold on our street within the last 6 months, so we had a very strong idea of market value to start with.

The offer we received from the developer was 4% below the higher valuation we got and around 1.5% below the second valuation - The second of which we felt was more realistic.

In doing the part-exchange we also save agents fees (which would eat up most of the expected additional gain) and remove the risk of a chain so it feels like a comfortable compromise.

[Sarnie]

C Lee Farquar said:

Is this what they prefer or a legal requirement, though?

This is the exact problem with using a solicitor "recommended" by the builder. The solicitor is ensuring that they have enough funds on account should the OP pull out of the transaction. Most likely because thats what the builder has stipulated that they want.

It's normal for the solicitor want and need to qualify your deposit. But a solicitor acting in your interest may push back to the builder and say they are satisfied at the sight of funds that they have seen, without needing you to send it to them 6 months in advance of completion....

[romeogolf]

Sarnie said:

It's normal for the solicitor want and need to qualify your deposit. But a solicitor acting in your interest may push back to the builder and say they are satisfied at the sight of funds that they have seen, without needing you to send it to them 6 months in advance of completion....

This is the answer to my question. I'll push back next week and tell them I don't expect to transfer the full deposit until nearer completion.

Regardless of how familiar the solicitor may be with the developer, they're working for me on this transaction.