If property transactions aren’t completed quickly enough or if a lender gets cold feet, creditors can pull out of lending at the last minute. If you only have a few days to complete the transaction before you lose your deposit, you may face a race to finish the deal before you forfeit it. It’s an uncomfortable and stressful scenario, but there are options to explore.
Why Do Lenders Back Out?
If you are at risk of losing a significant deposit, it’s vital that you act quickly. Losing the deposit would mean not only losing the property you want to buy but also taking a significant financial setback. Deposits, especially when buying a high-value property, can take considerable time to accumulate. Losing one during the purchasing process could put you back at square one when it comes to both buying a property and rebuilding your savings.
Unfortunately, it’s not uncommon for lenders to withdraw at the last minute. The reasons can vary. A lender might pull out if there has been a sudden change in your personal circumstances that they cannot or will not accommodate. In other situations, there may be issues with the property you want to buy. In some cases, a lender can withdraw their offer because of something as straightforward as incomplete or, even where innocently provided, inaccurate information on a mortgage application.
Whatever has happened, the first step is to keep a cool head. A lender pulling out at the last minute will naturally feel unsettling, but what you do next will determine how many options remain available to you.
Short-Term Finance
Short-term finance can be one route worth exploring. Provided your lender hasn’t pulled out because you cannot afford the mortgage or because of a complete loss of income, short-term finance may provide a solution to completing the transaction.
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Bridging finance, a type of short-term loan, can be more flexible than a traditional mortgage. As long as a bridging lender is comfortable that you can afford the borrowing and that you are on solid financial footing overall, bridging finance may be an option. Lenders will typically consider the property at the centre of the transaction, your net worth and your exit strategy – that is, how you intend to repay the loan.
Because of this flexibility, lenders may be able to consider your case when a mortgage lender has withdrawn at the eleventh hour. Bridging loans can often be arranged quickly, potentially allowing you to secure the finance needed to complete the property transaction by the required deadline. This can provide valuable breathing room, helping you secure the property and protect your deposit while giving you time to arrange a longer-term financing solution.
There are, as with any form of lending, some important caveats. Bridging finance is not a universal solution and will not resolve every lending challenge. For example, if you have significant existing debt, are attempting to purchase a property that is significantly overvalued, or the underlying numbers do not support the transaction, bridging finance may not be appropriate. Similarly, if your original mortgage lender withdrew because of fundamental concerns about your financial position, a bridging lender may reach the same conclusion.
Exit
Bridging finance is a short-term borrowing solution rather than a replacement for a mortgage. It can provide the funds required to complete a transaction within a tight timeframe, making it particularly useful when a purchase is at risk of falling through. However, it should generally be viewed as a short-term solution rather than a long-term financing strategy.
Typically, where you need to complete a purchase quickly, bridging finance can be used to complete the transaction. You can then use the additional time to arrange longer-term refinancing, usually in the form of a mortgage.
Applying for a mortgage after a bridging loan is in place may be less challenging than arranging finance under the pressure of an imminent completion deadline. Your broker will have more time to approach suitable lenders and negotiate the appropriate terms. You may also have time to address any issues that caused the original lender to withdraw, where these contributed to the deal falling through.
Once longer-term refinancing has been secured, the mortgage proceeds can be used to repay the bridging loan. The new mortgage would then be repaid according to its agreed terms over the longer term.
