One of Ireland’s largest developers has confirmed that it does not typically include the so-called “subject to loan approval” clause in contracts for its new home sales. Earlier this year the Law Society warned that buying a home without this clause in place is “unsafe”, as it means that buyers could risk their deposits should the sale not go ahead.
Castlethorn, developers of current new home developments including Grace Park Wood in Drumcondra, Somerton in Lucan and Rathborne Park in Ashtown, Dublin 15, as well as Dundrum Shopping Centre and Belarmine in Stepaside, says that, as is generally the norm in the industry, its standard new homes contract, as issued to purchasers' solicitors, does not include a "subject to loan clause".
However, Hugh O’Neill, operations director with Castlethorn, confirmed that the developer will, when requested, insert such a clause in buyers’ contracts.
The clause gives protection to buyers in the event that in between signing contracts for a new build, and completing on the property, which can take up to two years, they don’t run into problems with their loan approval. While banks will give formal loan offers ahead of signing a contract, these only last for a certain number of months.
Buyers can run into difficulty getting approved for the same amount when it comes time to close a property for a number of reasons, including failure to obtain loan approval, a fall in income, or a bank’s valuation coming in lower than the purchase price. If a buyer doesn’t secure such a clause, they will lose their deposit and may be liable to any losses the developer might incur if they proceed with the purchase.
Increasingly, developers of new build homes are excluding the clause from their contracts, despite a recommendation from the Law Society that purchasing a home without this clause is “unsafe” for the buyer.
From the developer’s perspective, lenders providing them finance may insist on unconditional contracts on properties sold before it will provide funds for another stage of the development. Conditional contracts also puts the developer at risk of the buyer pulling out of the contract, citing failure to get loan approval, even if they may have just changed their mind.
Issues with contracts
The exclusion of the loan approval clause is not the only issue buyers of new homes are now coming up against when buying a home.
Solicitor Niall Geaney of Geaney Solicitors recalls a client receiving a contract for a new home with a somewhat “flexible” sales price.
According to Mr Geaney, the contract said that if, for any reason, the cost of products used in the build increased, then the developer reserved the right to increase the price of the house. This issue of a rising sales price between signing contracts and completing on the property can also arise with VAT, with the developer looking to protect themselves against potential increases in the rate of VAT over the duration of the build by inserting a similar clause in a contract, that the sale price may rise if VAT also rises.