Estate agents say ‘subject to loan approval’ clause causing major concern for vendors

Estate agents are calling for the use of a legal clause, which allows purchasers to back out of a contract without penalty on the grounds that they couldn’t secure mortgage finance, to come to an end.

"It's time to get rid of it and go back to the way it was," argues Pat Davitt, chief executive of IPAV (Institute of Professional Auctioneers and Valuers). "It was put there for a purpose, because banks in some cases had given loan approval, but may not have then given people the money".

The “subject to loan approval” clause has been in use for many years, but was normalised over the past five years or so, as it offered welcome comfort to purchasers who feared that their bank might withdraw their mortgage approval.

Solicitor Walter Odlum says that it has become standard practice over the last few years for two reasons: one was the fear that bank wouldn't release the funds to the purchaser, and the second was that the valuation of the property might fall, leaving the putative purchasers with insufficient mortgage funds to close the sale.

Now however, estate agents fear that it is creating an unequal playing field in favour of purchasers.

While Davitt notes that “in a rising market many people aren’t pulling out”, if the market softens, “you’d see a lot of people using it” he says.

One estate agent told the Irish Times that the issue was causing "untold hassle" for vendors. He argues that the clause means that even when contracts are signed, "the seller isn't 100 per cent certain that the sale will close as per the contract", as purchasers can invoke the clause - and there is no way of proving whether finance is an issue or not.