As today is one of those days that is feared by many superstitious types (Despite occurring two or three times a year), I thought it would be a good date to look at a few things that could go wrong to potentially stop your property purchase going smoothly.

1. Going unconditional on your purchase before all conditions have been met.

 In NZ when purchasing any property, the stage where that purchase becomes definite is referred to as an unconditional contract. Unlike the U.K. where you can miss out on a property to another buyer even on the day the sale is meant to go through (Another horror story in itself!), once all the conditions of the contract have been met, then the purchase will occur. It is therefore vitally important that any conditions entered on the contract are addressed as early as possible.

Finance approval is the main condition that people think of, but others such as building inspections, the ordering of LIM reports and completion of work on the property by the vendor prior to purchase, all need to be followed up, and no contract should ever be declared unconditional without consultation with your solicitor first.

2. Shortfall of funds on settlement.

We have had phone calls from solicitors on the day before settlement (i.e. when the money gets passed over from buyer to seller) to say that their client has miscalculated and is unable to purchase their new home due to a shortfall of funds. This can happen for a number of reasons, but some of the more common are;

·         Forgetting the associated costs of agents and legal fees when selling a property and presuming that a larger amount will be available as a deposit

·         Having the deposit safely tucked away in a term deposit or high yield savings account, but failing to note that there may be a period of time that the money has to remain in the account. When working out the settlement date for the purchase it is a good idea to check when you are actually able to access those saved funds to avoid early withdrawal penalties.

·         Access to funds from Kiwisaver and Homestart grants also needs to be addressed in a timely manner and not left to the last minute, with confirmation of the amount that can be withdrawn.

3. Increase of Interest Rate (And cost of repayments) between unconditional and settlement dates.

Home Loan Interest rates are constantly being reviewed and changed. To protect against increases prior to settlement, a fixed rate can be locked for up to 60 days, meaning that you can guarantee what your rate will be on settlement. Your adviser should have factored in a slightly higher interest rate when working out your comfortable loan affordability figure to protect against slight increases, meaning that there won’t be any shortfall in your budgeted expenses.

The result of the horror scenarios above is that you are unable to settle your purchase on the date stated. This can lead to penalties being incurred and in extreme cases can lead to legal action. Therefore the team that helps you with every aspect of your purchase is vitally important. Your solicitor will be an advocate regarding every aspect of the contract. Your accountant will be able to guide you on any benefits or limitations regarding the purchasing entity and any tax implications and your registered home loan adviser will be able to make sure that you have a stress free home buying experience and will help you avoid the nightmares.

This post was written by

John White - who has written 3 posts