According to the Chief Executive of the Real Estate Institute (REINZ), home buyers who want to withdraw from a housing deal using the finance clause may be asked to provide evidence from this Friday.
Up until now, the finance clause has been a standard condition in most sale and purchase agreements, giving purchasers the ability to back out of a deal due to not being able to obtain finance. Usually the purchasers’ words would be enough and the sale wouldn’t go ahead, no questions asked.
However, from Friday 6th December 2019, buyers will be required to back this up with a letter or email from their respective financial institute. If asked by the vendor, they must also show that reasonable steps have been taken to obtain finance. Failing to do so may mean that purchasers are legally bound into the purchase contract.
What impact will this change have?
This will cut out the time-wasters and house hunters who simply enter into a conditional contract, hoping to negotiate and drive down the agreed price with the security of an easy out if their price isn't reached. At the same time, it will provide more protection to vendors, especially those who may be relying on the sale to make their new purchase.
However, buyers need to understand that banks can decline finance for a property not just from the affordability point of view, but if a property isn’t acceptable to them.
Those who are pre-approved up to a particular purchase price from their bank won’t necessarily lose the ability to include a finance clause in the sale and purchase agreement. Their pre-approval can still be declined due to the property not meeting the banks’ standards. However, it does mean purchasers should take their conditional offer more seriously and speak to their financial adviser and legal representative.
If you’re looking to enter the market shortly, having a competent financial adviser/mortgage broker going forward will be crucial.