Why is the Letter of Offer important?

[gonesp]

Hi there,

Curious question: if a Letter of Offer for a mortgage doesn't guarantee you anything (as the bank can, at any point, decide not to honour what is on the Letter) nor does it guarantee anything to the bank (as you can have multiple Letters and can choose at any time to abandon the offer), what is it really for? Why is it needed and what difference does it make to have one 6 months in advance or 4 weeks in advance?

In other countries, a Letter of Offer constitutes a temporary contract. The bank agreed on lending you the money with certain conditions and at a certain interest rate and by doing so they've secured a customer and you trust them in order to secure a loan (which is valid, until the drawdown). But in Ireland, we have this Letter, which doesn't seem to do much more than waste both parties' time. Those seeking one can get one 6 months in advance or 4 weeks, doesn't really make any difference it seems.

Any thoughts you could share on the above?

Thanks!

 

[Brendan Burgess]

Interesting point.

The letter of offer agrees to give you a mortgage for the property specified if your circumstances don't change in the meantime.

But the price is determined when you draw down the loan which could be now or could be in 6 months.

I am a bit confused about the prices of fixed rates. It used to be the situation that the rate was determined on the date of drawdown. But Avant announced that they would hold the rate for anyone with an offer as long as they drew down within 4 weeks. The main Irish banks have not increased fixed rates recently, so I don't know if that is their practice, despite what it says in the contract.

I don't know the practice in other countries.

But I can't see how the Irish practice wastes your time.
The alternative could be:
We will approve you in principle.
We will give you a binding offer when you have a contract and when you draw down within one month.

But as the Irish conveyancing system is so slow, that would be unworkable.

Brendan

 

[gonesp]

The letter of offer agrees to give you a mortgage for the property specified if your circumstances don't change in the meantime.

I know, it is like in relation to you, the buyer, not the bank. The bank can actually decide not to honour anything written in that Letter, which makes it completely pointless from a buyer's perspective, thus making the banks completely at the mercy of whether a buyer is naive enough to go with a larger rate or not.

I am a bit confused about the prices of fixed rates. It used to be the situation that the rate was determined on the date of drawdown. But Avant announced that they would hold the rate for anyone with an offer as long as they drew down within 4 weeks. The main Irish banks have not increased fixed rates recently, so I don't know if that is their practice, despite what it says in the contract.

I had a Letter of Offer from Avant Money since February. Since then the rate has gone up once. I've recently renewed my Letter of Offer and it contains the same figures I was given back in February. However, this week, I got an email from my broker informing me they will be charging me a new rate from September onwards (even though, my Letter of Offer is valid until February 2023).

There doesn't seem to be any interest in honouring the Letter of Offer when it affects the buyer, but when it affects the institution (with a likely rate dip) they hold on to it with an iron fist.

But I can't see how the Irish practice wastes your time.

It wastes everyone's time since you're made to sign a document in advance that has no practical value at the drawdown.

But I appreciate your perspective. Thanks!

 

[Monbretia]

You have a letter of offer since Feb valid until next Feb, is this based on the purchase of a specific property?

Re the fixed rates Brendan I know in the past banks sometimes offered to guarantee a fixed rate for a set length of time for a fee, so for 100 pounds at the time you could 'hold' the rate for a period of time, usually only very short though so you'd want to be very close to drawdown. Wasn't available on every fixed rate and probably was connected to the fact that the bank was also borrowing that tranche of funds at a guaranteed rate.

 

[Brendan Burgess]

I had a Letter of Offer from Avant Money since February.

This is August.


If you had the letter of offer, why did you not draw it down?

Brendan

 

[gonesp]

This is August.


If you had the letter of offer, why did you not draw it down?

Brendan

I had an initial letter of offer in February and had to renew it recently. The new letter of offer expires in Feb 2023 (or some time close to that). The property is a new build and was expected to be finished close to the middle of Q3, but was delayed until October.
Both letters of offer show the same interest rates, but we've been informed that will change in September.

It's interesting, however, that Avant Money was open to renewing our letter of offer at the same rate, only to send an email, one week later, informing us that all rates would be changing.

 

[Brendan Burgess]

The property is a new build and was expected to be finished close to the middle of Q3, but was delayed until October.

So are you suggesting that back in February, you should have got an open-ended option on the mortgage rate? In other words you could draw down the mortgage or not. And if did choose to draw it down, the rate as of 9 months earlier would apply?

In other countries, a Letter of Offer constitutes a temporary contract.

I would be very surprised if you could have got a Letter of Offer in another country which lasted indefinitely.
In Ireland a contract requires both offer and acceptance - that may well be different in other countries.

Brendan

 

[gonesp]

So are you suggesting that back in February, you should have got an open-ended option on the mortgage rate? In other words you could draw down the mortgage or not. And if did choose to draw it down, the rate as of 9 months earlier would apply?



I would be very surprised if you could have got a Letter of Offer in another country which lasted indefinitely.
In Ireland a contract requires both offer and acceptance - that may well be different in other countries.

Brendan

In other countries, letters of offer don't last indefinitely, but when you get them, for the upcoming X months (usually 6), you've secured the rate that was in effect at the time your loan was approved. I'm suggesting having a letter of offer that contains interest rates and other figures that can or not happen is erroneous and a waste of time from both parties.

If it's just a piece of paper saying "we, the bank, can lend you this money", then we could easily have just an email and an ID number with that information, this whole process makes no sense.