Third of mortgage applications denied in past six months

A growing number of finance firms are raising last-minute questions and delaying tactics that threaten to scupper a house move.

Some are even cancelling a mortgage offer, which can mean buyers lose their deposit, in developments triggered by the credit crunch.

The failure of thousands of risky mortgages in the U.S. left some banks with huge losses and reluctant to lend to mortgage firms. This scenario forced Northern Rock to go to the Bank of England for emergency funding.

The fallout has swept through smaller UK lenders and brokers, who are cutting staff, axing loans and tightening lending rules.

This means some home-buyers who were considered safe customers when they applied for a mortgage are now no longer acceptable.

Specialist firm Convex Conveyancing says up to 6,500 buyers who are in the middle of purchasing a home may face difficulties. The

company, which arranges the legal side of 1,000 property purchases a year, has seen an increasing phenomenon of problems being raised between the exchange process and final date of completion.

Buyers normally exchange contracts and pay a deposit days or weeks before completing the deal. If they exchange and lose the mortgage offer they could lose their deposit.

Convex said some lenders are more likely to renege on the offer at the last minute. It is advising buyers using them to exchange and complete on the same day to cut the risk.

Managing director Duncan Samuel said: 'Once the parties have exchanged the buyer is legally obliged to buy the property or lose their deposit, which even on a modest property is likely to be more than £20,000, and may face being sued for breach of contract.

'Now we're finding the lender comes up with queries the day before completion. A common claim is they have not had confirmation the title is good security for the advance.

'Some of the questions that they are asking we have not seen raised by lenders before. It is clearly linked to the credit crunch and is a particular issue in the sub-prime market.'

Stamp duty bills have surged by an average of 25 per cent in a year, adding a punishing burden to home-buyers and providing a multi-billion-pound Treasury windfall.

Buyers are paying an average of £3,581, which is up by £711 on last year. Soaring house prices mean record numbers of homes are caught by the property purchase tax.

Government income from the duty has gone up from £675million in 1997 to £4.6billion now. It is one per cent of the value of properties between £125,000 and £250,000, 3 per cent for those from £250,000 to £500,000 and 4 per cent on homes above that.

More buyers are affected because the Government has not increased the threshold in line with rising prices. Critics say the burden is so high that it prevents many people climbing on to the housing ladder.