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Why gazundering could cost you that mortgage offer

Homebuyers who “gazunder” their seller (by negotiating a lower house price than the one they have previously agreed, just before contracts on the property are due to be exchanged) could see it backfire if the mortgage lender carries out extra checks.

Many buyers might be tempted to ask for a discount if they have yet to exchange contracts, especially if they are worried that house prices will fall because of the damage being caused to the economy by the coronavirus outbreak.

However, doing so could trigger a second round of affordability checks by the mortgage lender which would be especially damaging if a borrower no longer has a predictable stream of income, either because they have been furloughed, are self-employed, or because bonus payments have accounted in the past for a significant proportion of their earnings.

Banks and building societies have become stricter about lending to these groups of workers since the crisis.

It is not unheard of for lenders to carry out checks at any point in the transaction even if the buyer and seller have exchanged.

Gazundering could also result in a more expensive loan if the buyer wanted to borrow the same amount of money from their lender, because it could push them into a higher loan-to-value bracket. The bigger the loan in relation to the property value, then the bigger risk you are considered to be and so the higher the rate you will be charged by the lender.

If a bank or building has agreed to lend £195,000 on a £325,000 house and the buyer then secures a £25,000 discount, the loan shoots up from 60% of the value of the property to 65%. This could be avoided by putting the property price discount towards the deposit, so it is the same proportion of the purchase price.

Virus or no virus, at Rosewood, we want to make sure you are looked after. If the transaction changes at any point during the house buying process, we will always do the responsible thing, discuss your options with you and inform the lender of any material changes.

CONTACT DETAILS

Rosewood Wealth Management Ltd

388 Brimington Road
Chesterfield, Derbyshire S41 0TF
United Kingdom (UK)
Phone: 01246 932300
Email: info@rosewoodwealth.co.uk

Registered in England and Wales Registered Company Number : 08291755. Registered address: 388 Brimington Road, Chesterfield, Derbyshire S41 0TF. Directors: Donna Robertson & Shannan Pool-Gorman

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What to do if you have a complaint: If you have a complaint or dispute with us, you are entitled to make a complaint. We have a complaints procedure that is available on request. If you wish to register a complaint, please contact us either in writing, by telephone or email. If you wish to register a complaint, please contact us: In writing: Shannan Pool-Gorman, 388 Brimington Road, Chesterfield, S41 0TF. Email: info@rosewoodwealth.co.uk, or by telephone 01246 932300. Please be assured we treat complaints seriously. For your protection, if you cannot settle your complaint with us, you may be entitled to refer it to the Financial Ombudsman Service (‘FOS’). Please see the following link for further details: http://financial-ombudsman.org.uk/.

A lifetime mortgage is secured against your home and is a complex product. To understand the features and risks, ask for a personalised illustration. Your home or property may be repossessed if you do not keep up the repayments on your mortgage. You may have to pay an early repayment charge to your existing lender if you remortgage. The value of your investment can go down as well as up and you may not get back the full amount invested. Accessing pension benefits early may impact on levels of retirement income and your entitlement to certain means-tested benefits. Accessing pension benefits is not suitable for everyone. You should seek advice to understand your options at retirement.

© 2019 Rosewood Wealth Management | Rosewood Wealth Management is a trading style of Rosewood Wealth Management Ltd which is Authorised and Regulated by the Financial Conduct Authority – number: 841587. You can check this on the Financial Services Register by visiting the FCA’s website – or by contacting the FCA on 0800 111 6768. The Financial Conduct Authority does not regulate taxation advice, university/school fees planning some aspects of buy to let mortgages. The guidance and/or advice contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. The FCA’s consumer website address can be found here.