Buyers rent back homes to sellers to complete earlier but may be in breach of mortgage terms.
John Stephenson, senior partner and head of residential property team at city firm Bircham Dyson Bell LLP, is predicting that April's stamp duty land tax (SDLT) increase to 5% on properties over £1 million will create chaos for buyers, sellers, solicitors and lenders alike.
"There's one very real difference this time around which few have realised at first pass; the relevant date for assessing the rate of SDLT is at the point of completion, whereas in the past it has been at the point of exchange of contracts," explains John Stephenson.
"There will be an almighty rush to get contracts completed before April 6, and I fully expect some will not realise yet that it's the completion date that is relevant. Further, lenders and the banking system generally will be put under immense pressure in those last few days up to 5 April to transfer funds before the cut off , with the potential for all manner of knock on issues if they fail."
As buyers try to push the sale of properties through faster, many are considering entering into agreements that see the sale of the property complete before April 6, but not necessarily see the new owners move into their new home.
"I've heard of many who are looking at completing before the magic date, but who are then happy to sign a tenancy agreement so that the sellers have time to find a new home - and don't have to move out so fast," explains John Stephenson.
"In principle, this is simple to effect legally and is superficially very attractive, but it comes with a big warning because many mortgage offers require that vacant possession is given at the date of completion, which is when the buyer's mortgage kicks in. Breach of the mortgage terms could result in the lender calling in the loan or (as a price for not doing so) insisting on converting it to a buy to let mortgage at a much higher interest rate.
"For those with such plans, it's wise to consult with the lender and get permission to rent back the property for a short period of time to avoid the risk of such serious penalties."
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