Do I need to tell an estate agent how much a bank is willing to lend us?

Question

We live in the UK and are hoping to move home. We wanted to put an offer in on a house. We have already spoken to our bank who have given us a letter stating the amount we are able to borrow. (Its the asking price of the house but they are willing to give more.)

The estate agent for the sellers has asked to see this letter and we have shown it to him, so he knows we can afford the full amount. But I feel at a huge disadvantage to the negotiating process. Its in the estate agents interest to push the seller to not accept our lower offers, he says he cant tell them the amount because that would be a conflict of interest but surely him just knowing is a conflict of interest.

He has used phrases over the phone that suggest he is letting them know this, "I'll say this is getting close to your maximum.." etc.

If we approach another estate agent for a different house I'd like to avoid this situation, do I have to tell the estate agents what the bank is willing to offer? Or can I otherwise work around this?

Answer 1

Estate agents face 2 somewhat contradictory legal requirements.

On the one hand they are required by law to promptly pass on all offers received to the vendor that match the vendor's stated criteria (so for example they can disregard "silly" offers if the vendor has specified a minimum price).

However they are also required not to "knowingly or recklessly" pass on misrepresentations about "the financial standing of that purchaser" (or certain other things).

This is in the snappily titled The Estate Agents (Undesirable Practices) (No. 2) Order 1991.

So what is an estate agent to do when you make an offer?

The usual interpretation is that they have to make reasonable efforts to ascertain that you actually have the ability to satisfy your offer. One way of doing that is to see that you have an agreement in principle from a lender (which is what the letter you have from your bank is sometimes called).

Another option is to have you talk to an in-house mortgage broker who will ask about your circumstances and confirm whether you can afford what you're offering.

Either way of course you are revealing information that may potentially colour negotiations and the only protection you have is other rules preventing the estate agent from passing on that information.

Answer 2

At the end of the negotiation you will have to show the letter that gives the amount. But this is only after the paperwork has been signed locking in the details.

Your agent should have advised you not to show the sellers agent the letter. The sellers agent doesn't work for you, showing them that number did tell them the maximum you can afford. Of course this isn't the maximum you want to pay for that property, but you gave them a key piece of information.

Lets say they keep their promise to you "he cant tell them the amount because that would be a conflict of interest"; you have already heard him use phrases such as "I'll say this is getting close to your maximum..". He uses subtle changes in words and tone to convey this information to the sellers. He keeps is promise to you and his obligation to the sellers.

In a sellers market there can be situations where the house has multiple bids at or over the asking price. The seller doesn't want to negotiate with bidders who can't get a mortgage. In this case they may insist on seeing the letter. Not showing it means they focus on the bidders who do show their letter. In that case you might have to show the letter. I have heard of banks preparing a different letter pledging a lower amount but indicating the true number is actually larger.

Answer 3

Knowing how much you could possibly pay, doesn’t tell them how much you are willing to pay. Also, for just about everybody there is a bit of lee-way even with the max amount that a bank is willing to finance (the buyer could get more money for the down payment). Also, unless it is at auction it’s not a bidding war, and while there can be some negotiations on repairs and such, it’s very close to a take it or leave it process.

And this is for both sides, if a seller rejects an offer, most buyers simply move on to another property. Only if the offer was less than the asking might one reasonably hope for another offer after rejection.

In short, I don’t see it as a major problem. If you do, I would point out that with a more computerized system, it is possible to get a tailored approval letter from some banks: the determine that they can offer you X, and through there website you can get a pre-approval letter for any amount less than X in a matter of minutes. Shop around for a bank that does that.

Answer 4

You don't have to show the real estate agent any letters from your bank. The selling agent works for the Vendor not you. All you need to do is make your offers and let them know you have pre-approval from your bank.