Unbiased.co.uk, which connects people to independent financial and mortgage advice, has helped reveal a hidden impact of the Covid pandemic, leaving would-be homebuyers devastated after lenders abruptly withdrew their mortgage offers.

At least two sets of buyers in Reading lost more than £30,000 each.

The property market shutdown earlier this year proved especially painful for buyers nearing completion.

In a survey by Butterfield Mortgages of more than 1,300 homeowners and would-be homebuyers, three in 10 said they had lost their exchange deposit as a consequence, due to the shutdown taking place after contracts had been exchanged.

The exchange deposit – typically 10% of the property purchase price – is the sum of money that the buyer’s solicitor transfers to the seller’s solicitor at the time contracts are exchanged.

It shouldn’t be confused with the mortgage deposit (though it forms part of that), which is the amount of cash or equity put up in addition to the loan. The exchange deposit provides security that the buyer will not pull out of the sale.

But many homebuyers earlier this year were forced to pull out of sales through no fault of their own, after their contracts were exchanged.

As a result, buyers will have lost an average of £23,000 each (based on the average UK property price). In some cases this may account for their entire mortgage deposit too – a huge blow that will crush home ownership dreams and wipe out life savings in the process.

At present, there is no indication that any of these buyers are entitled to compensation from the government to make up for losing their exchange deposits.

However, given the number of transactions where this has apparently happened, it would be surprising if there were not calls for some form of deposit compensation scheme to be put in place.

Life savings gone

A couple in Reading found themselves in exactly this nightmare, after their buyer’s lender withdrew a mortgage offer after contracts had been exchanged.

Abdus explains: “Our seller was still insisting on us paying our 10% deposit, so we had to insist on our buyer also paying their 10% deposit to us. Unfortunately, our purchase price was double our sale price. So our buyer must pay us £33,000 and we must pay £66,000 to our seller – so we both lose £33,000 for nothing. This money is all our savings from the past seven years. Our account’s empty. We are devastated by this – we have an eight-month old baby, but now we are just too sad.”

What the couple found most frustrating was that there was no fault on their part, as their lender was still ready to honour their mortgage deal.

It was their buyer whose offer was abruptly withdrawn after exchange, apparently as the result of their lender imposing new lending restrictions as a result of the pandemic. These buyers too stand to lose all their savings.

Abdus believes that the government should look at compensating people in this predicament, just as they have paid for people to take furlough.

He said: “The government needs to intervene. Lenders are withdrawing applications after exchange. That’s not the mistake of the people in the middle of the chain, who have everything in place.

“Just like the furlough scheme and the stamp duty holiday, the government should compensate those who lose their savings like this, or intervene to stop the person at the top of the chain from demanding their deposit. If lenders pull out after exchange people should not be punished. These are special times.”

Click here to find out more at Unbiased.co.uk