A bad banking system that almost cost me £39,000

I have a story for you today that makes me laugh and rage at the same time. Let this story be a cautionary one for you, in case your financial institution is allowing you plenty of freedom in what you do online.

How it started

The whole story starts with me wanting to buy a rental property. I’ve bought and sold properties before, with complex terms and tricky mortgage arrangements…so I felt confident when I found a little flat, battled for a good price and applied for a mortgage directly. What’s worth knowing is that when you apply for a mortgage, you start with a decision in principle, move to mortgage certificate and then mortgage offer. Mortgage offer is usually issued subject to the valuation of the property. The valuation is done by a professional property surveyor and sometimes it is done in person and a lot of the time is is done…remotely. That’s called a ‘desktop’ valuation.

Anyway…I applied for a mortgage. i then received a decision in principle, made an offer on the flat, provided the property information to the bank, received a mortgage certificate and offer details. A week or so after the offer was issued, I also received a message from the bank saying that my mortgage application had been approved.

With that knowledge I moved on with the process, instructed the solicitors to get the searches underway, discussed works with various trades and waited patiently for the process to run through. This week, the solicitor let me know that the searches had come in and we were getting ready to write up the contracts.

I should probably explain the contracts in case you’re out of UK. Sale-purchase contract is written up once both parties are happy to proceed and finance has been arranged. The contracts are then signed by the respective parties – seller and buyer sign a copy each with a witness and give it back to their solicitor or conveyancer – and then the solicitor or the conveyancer exchanges the contract with his or her counterpart on the other end of the transaction. It’s literally called Exchange. If the contracts are exchanged, the buyer is then legally obliged to purchase the property or pay a penalty if they are unable to. Usually this penalty can be as high as buyer’s full property deposit.

Following the exchange, the buyer’s solicitor applies to the bank to release the mortgage funds for a specific ‘completion’ date.

In my case, because I’ve applied for the mortgage back in December and wanted to make sure we’re within the bank’s timeline (usually 3 or 6 months from mortgage offer to completion or your mortgage offer expires and you need to re-apply), I went back to my original application to check the exact dates. And then I saw it – the status of my application was not ‘approved’, but ‘awaiting review’ – different to what the bank told me back in December. So I called the bank and that’s when I heard what nobody in this day and time expects to hear.

A glitch?

There has been a ‘glitch in the system’. Not like a glitch in the matrix, just a glitch in the bank’s system. And the glitch looked like this: when the bank approved my mortgage and sent me all information, they did it without having the actual property valuation from the surveyor. That valuation came back rejecting the property (it turned out too small for mortgaging) but was never distributed to the bank’s underwriters, my solicitor or me. Apparently it was received on 4th January, after they confirmed the mortgage has been approved and issued the paperwork and the discrepancy was only discovered when I rang on 19th of February to ask about the odd status. While the 3 people I spoke to at the bank during that phone call were all VERY apologetic, they did not seem surprised. The lack of surprise is why I am writing about this – they pointed to the issue in their dual system – and internal and external interface where sometimes information apparently does not get distributed correctly.

Of course I raised a complaint with the bank and emailed every single mortgage broker I know (I seem to have a mini-database at this point) and unfortunately not one of them was able to offer financing because of the property’s size. I then sadly had to notify my estate agent and the solicitor to tell them that I am not able to proceed with the transaction. Interestingly, the estate agent who was adverting the property as mortgageable didn’t seem surprised either. Through conversations I found out that I was the second buyer who was unable to get finance. If you are thinking that if they knew they should have advertised it as ‘cash only’ sale, yes, they should have. But estate agents in the UK are not like realtors who work on buyer’s or sellers behalf, they are more like marketing managers and should be trusted to the same degree, which is ‘approach with caution’.

The money lost

If I did not find out about this miscommunication within the bank and continued to exchange, there is a good chance that my solicitor would catch the error and stop the exchange. However, if for any reason she’d fail to do that, and there are plenty of stories about this happening if you look online, I’d be liable for the penalty equal to my deposit worth 25% of that property, i.e. £39,000.

Luckily I have found out in time and exited the process swiftly. However, I am not coming out of it unscathed financially. While my solicitor costs should be covered by her insurance, I will still have to pay the hard costs incurred for things like the local authority search (£305 in my borough) and purchase of the management pack (£125-£225 depending on the housing association). Separately, the bank also charged me a booking fee of £349 for the mortgage which I am yet to find out if they are able to refund.

Given that I chose to bring my deposit money out of my investment account, I’ve missed out on markets growth over the last 2 months while the money sat in a regular savings account offering a pathetic interest. I also lost time, headspace, some sleep and any hope for the humanity I might have left after purchasing the place I live in now.

Now what?

Last night I’ve made a radical decision. I’ve decided to alter the course of this year and not purchase a property yet. Instead, I am paying off a large chunk of the mortgage I was not planning to pay off to free up more monthly income. Once this is done over the next few weeks, I’ll work on rebuilding my stock portfolio and continue my search for things that I would like to do that don’t cost a year’s salary to get into. And I’ll keep you posted on how that search goes.

Any harrowing real estate stories of your own? Feel free to share in the comments!

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