From Estate Agent Today!

Lenders back off with a new 'six month rule'
Monday 7th December 2009

Estate Agent Today would be interested in hearing from agents experiencing problems with selling properties that have been owned by the seller for six months or less.

Mark Savill, of Novahomes in Chard, Somerset, is one agent who reports a sale unexpectedly failing at the last minute.

The borrower had received the mortgage offer, signed the mortgage deed and given the solicitor the deposit. At the eleventh hour, the lender refused to advance the funds as the owner had only owned the house since October.

“The property in question was bought as a repossession to do up and sell on,” he said. The property had been refurbished when it was so nearly sold.

“The lender in this case was RBS. The Halifax now has the same policy. One problem – it does not appear anywhere in their lending criteria that the seller must have owned the property for a minimum of six months otherwise it will not be suitable as security.”

As the agent in this case points out, this restriction has implications for buyers, sellers and – ironically – lenders themselves.

Buyers will find themselves out of pocket on having made abortive mortgage arrangements if the rug is so suddenly pulled at the last minute, whilst sellers will have a property that cannot be sold for six months unless they find a cash buyer – who might pay less.

Lenders could also find themselves getting less for repos as soon as potential developers realise that their holding costs will be higher.

The agent says: “The real scandal is that this is not policy that is being disclosed to anyone up-front in lending criteria.”

Estate Agent Today is aware of a crackdown by some lenders to buy-to-let purchasers at auction where the property has been owned six months or less, and there was a practice note issued to lawyers last spring, in the context of mortgage fraud, which suggested they should ask sellers selling up in less than six months why they were doing so.

In this particular case, the explanation was straightforward.

Savill says the sellers are simply experienced property renovators. The would-be purchasers of this typical first-time buyer property wanted to live in it. It is hard to see where the lenders could have perceived any risk in a beautifully done-up property (we’ve seen the pictures) going for just under £125,000.

Meanwhile, the property concerned is lingering on Novahomes books, and presumably stands little to no chance of being sold until next March.

Thoughts, anyone?