The Government plans to trial new reservation agreements within the UK housing market next year in a bid to reduce the number of offers that fall through prior to exchange.
New findings suggest that between 25% and 33% of all transactions fail to happen as a result of buyers and sellers withdrawing after an offer is accepted, which costs around £270m in wasted fees each year.
The Government says these proposed agreements are designed to make the process of buying or selling a property quicker, cheaper and less stressful.
Buyers and sellers would be asked to put down a cash deposit to enter into the agreement and would then get some of that money back should the purchase not happen.
There are, however, a number of acceptable reasons for pulling out of the agreement, including a bereavement, job loss, inability to get a mortgage, or if the property is un-mortgageable.
Paul Preen, Managing Director at Lang Town & Country
What is the new reservation agreement?
The new agreements would mark a radical departure from the long-standing system currently in place in the UK, and it’s hoped it will subsequently reduce the period between offer and exchange by eliminating those not honest about their reasons for selling or buying a property.
Paul Preen, Managing Director at Lang Town & Country, said: “Throughout my many years in the industry, there have been numerous discussions on how to improve the buying and selling process in England. Many people look in admiration at the Scottish system and the process of some of our European neighbours.
“The process in England is antiquated and needs to be overhauled, and the Government has tried to implement various policies and procedures over the years such as Home Information Packs. Despite industry-wide condemnation of the Hip (as it was known), the Government pressed ahead and scrapped them a few years later.
“The proposed introduction of the reservation agreement would go some way to paying for abortive costs incurred for both buyers and sellers alike. It will show some form of commitment and willing from the outset from both parties.
“The agreement will have to fine-tuned to take into consideration things such as adverse surveys or defective title deeds but, in general, it would be welcomed within the industry.”
Why is the reservation agreement being implemented?
The Ministry of Housing, Communities and Local Government (MHCLG) has been carrying out behavioural insight research on the subject of fall-throughs.
It found that some 33% of buyers had a major concern the seller would change their mind and not accept their offer or withdraw the home from sale, and 45% of vendors were worried their buyer would have a change of heart part-way through the transaction.
Meanwhile, 66% of sellers and 70% of buyers were specifically worried the sale would not make it to completion after they had accepted an offer.
And 50% of buyers and 70% of sellers indicated they would be willing to enter into some kind of binding legal commitment after an offer was accepted.
When will the reservation agreement trial start?
Matt Prior, who has led home buying and selling work at the MHCLG for the last two years, said: “You’ve got a process that lasts 20 weeks. Why not try to lock people in a lot earlier? You have people who have tried to move two or three times, the buyer pulls out days before… it’s heart-wrenching.”
Consequently, Mr Prior revealed that the Government was working with the industry to develop what he called “a short, standardised reservation agreement which can be used in any transaction”.
He added: “I do not think it’s the complete answer, but it might be a temporary fix.” Following the results of this research, Ministers will be asked if they want to test reservation agreements. If they agree, field trials may begin as early as the first quarter of 2020.