Realty Talk: Some crucial issues when going for a financed deal

Following on from a previous article about the lack of advice on the phone when trying to arrange finance, you may remember that Tamweel, Rakbank and HSBC said they would phone back within 48 hours.

I phoned them on June 7; on June 8, Tamweel phoned and was very helpful. Rakbank has never phoned back. HSBC called back on June 15 but I told them I had already sorted it out, as it was more than a week ago that I had called.

The lady was very apologetic and disappointed that she had lost a potential client. As I have said many times before, don't expect people to call you back as you will probably be a long time waiting.

I will continue with what you have to do next. Once you have spoken to an adviser on the phone, you need to go and see them to pre-approve your borrowing capacity. You will need to take with you a salary certificate, bank statements of your last six months, a copy of your passport and details of the type and price of property you are looking to purchase.

They can then confirm the maximum they can lend you, at what rate and the maximum lending term (which is between 15 and 25 years depending on your age and nationality).

Once you have found a property, you need to complete an application form, together with the necessary documentation. You will be told that the approval will take between five and ten working days but allow twice that period to be safe and therefore arrange a transfer date for about 20 working days later i.e., one month.

If the property is ready, you must be sure that it has been fully paid; otherwise, the transfer cannot go ahead. If the property is not ready yet, then make sure there are no late payment penalties as this could delay or jeopardise the transfer.

Also make sure that you know when the next installments are due, and if there are any accelerated payments to be made to the developer in order to do the transfer.

Lenders will either hold the original sales contract as security and/or insist that their name is mentioned as having an interest in the property.

I have known of one lender who did neither until it was brought to his attention that the client could sell the property without his knowledge, walk away with the proceeds and never pay the lender back at all. This has been rectified now, of course.

The lender usually sends a representative with the cheque payable to the owner at the point of transfer. The developer is paid directly and the lender takes care of any further instalments as per the original contract.

Some lenders have special deals with certain developers such as no further payments until completion, (which saves you interest), or maybe a higher loan to value ratio. It is worth asking about these when talking to their mortgage adviser.

I mentioned earlier that if you were buying a property with finance then selling it off later could be a problem. The same applies if you wish to buy a property with cash and it is already financed by the existing owner. Let me elaborate on this.

If you have taken a mortgage on your property, then you will find with most lenders that in order to sell it, you have to repay the mortgage in full, before they will release the original contract and remove their name from the sales agreement.

This means that if you have a cash buyer they must pay the mortgage off first for you and then trust that you will do the transfer after a couple of weeks whilst the paperwork is being amended. This is a lot to ask for, from a complete stranger.

The alternative is to obtain the mortgage money yourself by borrowing from another source. If this is not possible then the only other option is getting lawyers involved who will prepare a contract or MoU (memorandum of understanding), between you and the buyer.

An escrow account may also be used as an instrument to protect the buyer's cash. This is all very costly and time consuming, and is more than likely to put the potential buyer off purchasing your property. The final alternative is for the buyer to take over the financing and then pay off the mortgage once transferred, but that incurs early redemption penalties.

I spoke with a couple of lawyers about this issue and they both agreed that it needs to be addressed quite quickly as more and more people are now buying property using finance companies or banks for the first time.

In the past, most properties have been bought with cash, mainly from the large investors and more affluent buyers. It is only recently that the end users are coming into the market and obtaining mortgages.

The problem will arise in a couple of years when people are looking to upgrade their homes and we then have a true secondary and tertiary market where end users are on the move continuously. I hope that by then, there will be some systems in place as in the UK, where lawyers are instructed by both buyers and sellers in all property transactions.

These lawyers are known as conveyancers, and I believe there will be a huge demand for their services in the not too distant future.

The writer is managing director of Best Value Property Consultants.