6% Mortgages: Can Your Buyer Pull Out of the Sale?

The average five-year fixed mortgage rate has hit 6% for the first time in three years, according to Moneyfacts figures reported by the BBC on 5 October. Almost every fixed deal priced below 5% has gone. There were 1,494 at the start of September and only nine are left. Estate agents' body Propertymark warns that even small rises in monthly payments may force some buyers to cut their budgets or pull out completely. If you're partway through buying or selling a home, the important question now is less "what rate can I get?" and more "can this deal still fall through?"

Why a Property Sale Isn't Binding Until Exchange

In England and Wales, agreeing a sale is not a legal commitment. A sale of land only becomes binding when contracts are exchanged, because the contract must be in writing and signed by both parties under the Law of Property (Miscellaneous Provisions) Act 1989. Until exchange, either side can walk away for any reason, or no reason, without paying compensation.

That means a buyer whose mortgage offer no longer covers what they need, or who simply panics about higher repayments, can withdraw before exchange. They may lose what they've already spent on surveys, searches and legal fees, but they won't owe the seller anything. Sellers can be left with costs of their own and, if they're in a chain, an onward purchase at risk.

What Happens If Someone Pulls Out After Exchange

Exchange of contracts changes things a great deal. The buyer usually pays a deposit at this point, normally 10% of the price under the Standard Conditions of Sale. If a buyer then fails to complete, the seller can serve a notice to complete. If the buyer still doesn't complete, the seller can usually keep the deposit, resell the property and claim any further losses from the original buyer.

For buyers this is the key protection point. Don't exchange contracts until you're confident about your mortgage offer and your budget. Your conveyancing solicitor should check that the offer is valid, that its conditions have been met, and that it won't expire before the completion date.

The Hidden Risks in Your Mortgage Offer

Many buyers assume a mortgage offer is guaranteed once it's issued. It isn't. Offers usually last for three to six months, and most allow the lender to withdraw or change the offer if your circumstances change, for example after a job loss, a cut in income or new debts. A rising-rate market adds two pressures:

Expiring offers. If your purchase is held up by slow searches or a stalled chain, your offer could run out. Replacing it now could mean a much higher rate, or a smaller loan if the lender's affordability test is applied at today's rates.
Down-valuations. Lenders become more cautious when the market cools. If the lender's surveyor values the property below the agreed price, the lender will lend less and you'll have to make up the difference.

If either happens, talk to your solicitor and mortgage broker straight away. Don't wait until a week before completion.

Renegotiating the Price: What's Fair Game?

Some buyers facing higher costs will try to renegotiate the price before exchange. That's legal, and in a cooling market sellers should expect it more often. If you're selling, your solicitor and estate agent can help you decide whether to accept a lower offer, put the property back on the market, or protect yourself with a tighter timetable to exchange.

If you're buying, be honest and act early. Asking for a reduction because of a genuine down-valuation or survey findings is common. Trying to change terms at the last minute risks the whole chain collapsing.

How to Protect Your Transaction Now

There are practical steps that lower the risk for both buyers and sellers:

• Instruct a conveyancing solicitor early and get searches ordered quickly.
• Agree a target exchange date with all parties and keep checking it.
• Buyers should have their broker check the offer's expiry date and conditions now.
• Sellers should ask their agent how the buyer is funding the purchase and whether their mortgage offer is in place.

What Should You Do Next?

Rising mortgage rates make the period before exchange of contracts the riskiest part of any move. A good conveyancing solicitor will keep your transaction moving and spot problems early, so you don't sign up to something you can't afford. Get in touch with the QualitySolicitors first contact team. They'll match you with a suitable conveyancing solicitor near you, so you can buy or sell with confidence, even in a difficult market.