Do your homework

2014-01

Mortgage information should be obtained before buying a home. A real estate agent introduced a flat with a lease to a purchaser. The buyer already owned a mortgaged flat, but he wanted to buy another unit as an investment.

After both parties agreed on the price, the agent arranged for them to enter into a preliminary agreement for sale and purchase, or PASP. As the flat was very much sought-after and the purchaser rushed to reach a deal, he did not do his own homework to obtain information on the granting of mortgages by banks before signing the agreement.

Instead, he only sought advice from the agent – who told him that recent homebuyers had been able to obtain 70 percent mortgages from banks.

After signing the PASP, the buyer applied to various banks for 70 percent financing, but was rejected by all of them. The lenders told him that only 50 percent mortgages are available for properties with a lease. In addition, since the purchaser already owned a flat with an outstanding mortgage, the bank needed to lower his debt-to-income ratio, and therefore could only approve a loan of less than 50 percent of the property price.

The purchaser was then unable to come up with the sufficient downpayment to buy the flat. So, he had to cancel the deal – and was forced to forfeit his deposit paid to the vendor.

In the above case, the real estate agent did not provide up-to-date information about mortgages, thus failing to comply with the Code of Ethics set out by the Estate Agents Authority.

The code requires agents to keep themselves informed of any changes in laws, government regulations, essential facts and developments in the property market in order to advise their clients in a responsible manner.

Before buying property, consumers should thoroughly examine their financial ability. They should also check with banks whether they can obtain a sufficient mortgage to finance the purchase before making any buying decision.