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Anyone able to tell me at what point in time a mortgage offer becomes legally binding on the lender?

In a real case which I came across recently, a buyer purchased an apartment at auction, having received a mortgage offer. The lender then withdrew the offer after carrying out a second inspection. To quote the buyer:

"After providing me with a loan offer, as is required when signing the auction contract, they did their own 'drive by valuation' in
addition to the valuation they had already accepted. Obviously by
January, lenders were becoming more and more paranoid. They decided
that the damage to the common areas was significant enough for them
to withdraw the loan."

The buyer has now forfeited her deposit, owes a substantial sum to the seller after the property was sold subsequently for less money, and may have to file for bankruptcy. As I see it, the lender is liable for the buyer's losses unless it made clear to the buyer that the offer was conditional, non-binding or whatever.

Regards
Ray

Hey Ray, I'm sorry, I can't answer but I'm sure an expert or someone more in the know will reply soon so hang in there. X

I'm no lawyer - but when I had to study contract law as part of my professional examinations, offer and acceptance was deemed to be contractually binding. I rather suspect that there may be something in the small print to avoid this - and this is the danger of buying property at auction on the back of someone else's money unfortunately.

Hi Melanie
Mortgagees often have small print-type get-out clauses, such as the one which allows a withdrawal if fraud is discovered. In this case, some fire damage was discovered in the common parts of the building, but this didn't affect the flat in question. I guess it's down to what the small print says in the mortgage conditions. It does seem unreasobale in anyone's language if a buyer can enter into a binding contract on the strength of a mortgage offer only to find the rug pulled from under him. M'learned friends wouild have a field day but I don't think the buyer can afford to hire them!!

At best he/she should try and get the deposit back on grounds of misrepresentation - ie the failure to point out the fire damage to them.

Unfortunately I think you'll find that mortgage lenders retain the right to withdraw an offer in the event of changing circumstances (and that it's them that decide things have changed).

Many lenders were criticised by brokers/customers for finding ways to withdraw mortgage offers when the lending conditions started to deteriorate.

I'm not aware that they have been held to account for this as they are naturally cautious in their wording to facilitate this if the need (from their perspective) arises.

Thank you. I think that, between you, you have answered this topic but I do feel the issue of making an offer and withdrawing it after the client has exchanged needs to be tested in court. If the fire damage was present at the time of the original valuation, then the circumstances HADN'T changed by the time the second inspection took place, so the clause covering changing circumstances cannot be relied on here, regardless of whether the lender's general loan criteria became tighter. It is no defence for the lender to say that he didn't notice it on first inspection. He should have.