Selling a home is stressful at the best of times. You spend months finding a buyer, negotiating a price, completing all the checks and preparing contracts, and there’s just one final step: the buyer needs to have their finance approved.

You’d hope it’s a done deal by this point – after all, the bank issued the buyer a pre-approval for finance a few months back – but what happens when you hear the news that your buyer’s loan application has been rejected? Or if your buyer exceeds their cooling-off period and the sale becomes unconditional?

One Yarra Valley resident, Mark, had to go through this very ordeal when the buyer for his 3-bedroom house couldn’t obtain finance and wasn’t following through on their promise to get a letter from the bank agreeing to break the contract.

The professional driver, who asked to that his surname be kept confidential, said he received $1000 upfront from the buyer with the remaining deposit to be paid after the cooling-off period. But the next instalment never arrived.

The sale was agreed subject to finance just before Christmas, and because of the holiday interruptions the deadline was set for a month later. The house was left on the market for weeks while under contract.

“We don’t know where we sit, what happens if it comes January 22 and legally she has to buy it,” Mark said at the time. “I don’t [want] to go down the road of taking her to court to get the money.”

Mark was depending on the money from the sale to be able to put a deposit down for a new house, but with no guarantee that it would arrive, he was stuck in limbo. In the end he received a letter from the mortgage broker which allowed him to end the contract and put his home back on the market.

Mark is certainly not alone in this; many Melbourne sales are falling through because the buyer’s finance is not approved.

And of course it’s just as disappointing and frustrating for the buyer as it is for the seller. If you like a place enough to commit to buying it, you’d be pretty gutted to lose out on it for reasons that are totally out of your control.

There was a particular problem with this towards the end of last year – especially for first home buyers – because of tighter lending criteria being imposed on banks, according to Nelson Alexander sales director Arch Staver.

A pre-approval granted before the changes were brought in could later be revised down by the bank, but the buyer may not discover this until they had signed a contract.

Its been calculated that the maximum amount available to a couple with two children and a combined annual base gross income of $115,000 had decreased from $619,500 to $556,300.

“In the last eight to 12 months, all the major lenders … had been working closely with the [Australian Prudential Regularity Authority] to ensure that lending standards don’t deteriorate when we have a combination of record low interest rates and house price growth,” general manager of credit risk Michael Hendricks said.

“And so part of those processes have been looking at how banks take into account, and make assumptions around, living expenses and types of non-stable income – bonuses and overtime – so really making sure that we maintain a good focus on affordability.”

Some lenders saw an 11% drop in the number of loans to investors in the final quarter of last year compared to the same period in 2014. First home owner loans increased by 6.5%, and purchases by owner-occupiers jumped up by 5.7%.

Although lot of the recent regulation changes were aimed at investment lending, there has been a knock-on effect for owner-occupiers. In particular, banks have increased the buffers they use to calculate whether a buyer can afford their repayments.

Werribee-based agent James Antonio at YPA Estate Agents said around two-thirds of the agency’s sales last year were subject to finance, with only one or two falling through each month.

Because offers subject to finance aren’t “rock-solid deals”, he said vendors can face a conundrum if they receive multiple offers for their property.

If you are looking to buy a home or investment property, make sure you have the right finance team and advice behind you.