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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.
Rosewood Wealth Management Ltd
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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