What happens if your mortgage offer is withdrawn?

To help buyers and sellers better understand their legal position, property purchasing specialist, HBB Solutions, has created a comprehensive guide to pulling out of a property sale. What does it mean? When is the last point you can do it? And what are the ramifications of walking away from the deal?

The first thing to consider is why you’re pulling out of the sale. Are you choosing to pull out, or are you being forced to pull out? In cases of the latter, the main reason a buyer will be forced to pull out is because their mortgage offer has been withdrawn by the provider. 

Mortgage offer withdrawn 

Why would a mortgage lender withdraw your mortgage offer?

Mortgage lenders reserve the right to withdraw their mortgage offers. They can withdraw the offer beyond the point where contracts are exchanged, all the way up to the point of completion. When you receive a written mortgage offer, it will outline the reasons why the offer might one day be withdrawn. The most common reasons are as follows:

The mortgage offer has an expiry date - it’s only good for a certain amount of time, usually six months. So, if there are significant delays in the buying process, the lender can withdraw the offer. 

If you provide incorrect or inaccurate information, the lender can withdraw the offer, and the same applies if they sense any kind of suspicious activity such as fraud.  

The offer can also be withdrawn if a previously unknown problem with the property is found during the conveyancing and surveying processes. Flood risk is a common example. 

Lenders sometimes conduct a deep dive credit check after granting a mortgage. If this unearths something negative that their initial credit check didn’t find, they can withdraw the offer. 

Finally, if your personal circumstances change after the mortgage offer has been granted - a job loss, for example - the lender can change their mind.

What should I do if my mortgage offer is withdrawn?

First things first, don’t panic or make any rushed decisions. If you simply run to another lender and try to rush through another application, there’s a good chance the same problem will occur again, plus there’s the fact that mortgage rejections can have a negative effect on your credit score. 

Your first course of action should be to speak to a mortgage adviser. They will outline all of the options open to you and tell you how best to move forward. If you have a solicitor, it’s wise to speak to them, too, as they will be able to give you details about your legal situation. 

Can a lender withdraw a mortgage offer after my sale has been completed?

No, they cannot. However, if you default on repayments or don’t conform to the rules stated in the mortgage contract, they can take action against you.

Pulling out of a sale voluntarily

Can I pull out of a house sale/purchase?

You can walk away from a purchase or sale without issues at any time until exchange of contracts because in England and Wales, an offer to buy or sell is not legally binding until this point, after which all parties must obey the terms of the contract they’ve signed. If you pull out after exchange of contracts, you could face legal and financial punishments.

If you pull out early as buyer or seller, there are still consequences that are important to consider. Financially speaking, the buyer runs the risk of losing their deposit and both parties will have wasted the non-refundable expenses already laid out for things like conveyancing and surveys. In such cases, the party who instigated the pull out can be taken to court and made to cover the losses suffered by the other.

In Scotland, the rules are slightly different. You can only pull out of a sale or purchase before the conclusion of missives - a series of letters between solicitors on behalf of their clients which constitute the contract for the sale. After these letters have been sent, nobody can back out of the sale.

What are the implications of pulling out? 

• Buyers

If a buyer wants to withdraw from a sale after the exchange of contracts, the seller may be entitled to keep the deposit already paid which means the buyer could be losing tens of thousands of pounds. The seller can then sell the property to somebody else. Furthermore, the seller can claim damages from the buyer, this can include any potential losses incurred such as market depreciation if the value of the property has gone down

• Sellers

If a seller pulls out after exchange of contracts, they may still have to pay the fee they agreed to give their estate agent. The same could apply for the conveyancer, depending on the specific terms of your agreement with them. The buyer can also claim back their full deposit.

Managing Director of HBB Solutions, Chris Hodgkinson, commented:

“With interest rates climbing and economic uncertainty continuing to grow across the property market, the lending criteria of mortgage providers is changing by the day.  

As a result, more and more buyers are finding that the rug has been pulled from beneath them in respect of their mortgage offer. 

Many more still are finding that their buyer or seller is pulling out for a raft of other reasons and this is making the property transaction process quite a treacherous one at present. Unfortunately, there’s nothing that can stop them from doing so and it can be a very stressful occurrence for those on the receiving end.”