The Ministry of Housing, Communities and Local Government has given more details of the trial of reservation agreements likely to take place in the first quarter of 2020.
At a conveyancers’ conference, a MHCLG representative said the test would be conducted in two regions of the country, not yet selected; the conveyancers and agents who will be involved have also not been selected yet.The scope and details of the trial are still being assessed by a company instructed by the ministry.
It is likely that different variations of reservation agreement will be tested - for example, some may have a non-returnable deposit of £500 put down by the purchaser, while others may have a £1,000 sum, and others not involving any advance payment at all.
And it may be that if a corporate agency is approached to take part in the trial, different branches may have different types of reservation agreement to test - and some branches will continue one the existing buying process without any reservation agreement at all.
MHCLG’s lead officer on house buying reform, Matt Prior, was a key speaker at the Bold Legal LIVE! conference in London, held in conjunction with the ESTAS Conveyancers’ Awards.
Prior told conveyancers that his ministry’s research on the subject of fall-throughs suggested that between 25 and 33 per cent of house purchases collapsed mid-deal each year, costing consumers some £270m in wasted fees.
He said the process as it stood currently was riven with uncertainty for consumers.
Some 33 per cent of buyers had a major concern that the seller would change their mind and not accept their offer or withdraw the home from sale; meanwhile 45 per cent of vendors were concerned their buyer would have a change of heart part-way through the transaction.
Sixty six 66 per cent of sellers and 70 per cent of buyers were specifically worried that the sale would not make it to completion after theyd accepted an offer.
And 50 per cent of buyers and 70 per cent of sellers indicated they would be willing to enter into some kind of binding legal commitment after an offer was accepted.
Consequently, Prior said, the government was working with the industry to develop what he called “a short standardised reservation agreement which can be used in any transaction.”
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i can only see this going horribly wrong and putting even greater pressure on first time buyers and causing people to stall putting their properties on the market.
Say hello to a housing crisis by the government meddling with something else, just think fee ban and the poor tenants end up paying more in the long run.
I assume the point of the trial Phil, is to see what, if anything goes wrong.
i agree Rob with the trial concept.
There is no No1 issue with the transaction time. Sometimes its the buyers / sellers delaying it with slow documentation or being awkward. Sometimes its the solicitor, sometimes the agent, but also its the searches.
The Government speak of a land where unicorns roam where completion is 8 weeks but then Camden council is taking 50 days to return the local search. If the government fix the issue with local authority then it would help.
Being part of the solution though is great, and together we will succeed.
Do you have members of your BLG in Birmingham?
In times where consumers do not have a lot of spare cash, and certainly when purchasing a property after having already paid for survey fees and search fees, this is just another fee to find and could deter a purchase. The majority of transactions don't fall through because someone changes their mind, its generally due to someone in the chain being unable to obtain mortgage finance, adverse survey or something revealed during the conveyancing process of which a reservation fee will not provide the answer.
Like with anything the government has introduced in the recent past it has to be properly stress tested, something they havent done with many pieces of legislation in the PRS which has had a negative fallout on tenants as many predicted for example. We have seen a similar attempt at this in the past with HIPs that failed spectacularly. Any beta testing should very much include whether it would further reduce transaction numbers which is a real possiblilty. I put together 1000s of deals over years gone by, with persuasion, one off viewings, local VIP work, spotaneity many of which would not have happened if I had been asking people for £1000 up front and where they may not get it back.
One of the biggest challenges is always how a fall through is determined. Reasons can be manipluated by buyers and vendors, and then there are countless other mitigations, loss of employment, divorce, bereavement, promotions at work, illness that may influence why a buyer or vendor does not proceed. Defining fault/blame fairly seems like an impossible task especially as one comment has already suggested. How do you determine what is a bad survey result for example? Is there such a thing as a clean survey on a Victorian property, they have all got a bit of damp or loose roof slates. Some buyers pull out over such things, others will use them as excuses to pull out if they have seen a better property. I can't see how there can a workable template, there are too many variables, but if you make it too black and white, ie pull out or dont pull out, then tranasction numbers will plummet.
i agree in full Matthew and lets be fair, buyers are only committed to the purchase on completion, some say exchange but any good solicitor can turn that over.
I see a future of transparency and earlier documentation which will reduce the time frame of the transaction and inturn reduce the number of non completions.
I keep scratching my head on this one. What's new? I and more than a few agents have been doing these for years, albeit not regularly. Of the two last year, one sale exchanged and completed fine, on the other the buyer took a calculated risk and could not exchange with the vendor keeping the few thousand pound deposit - it could have been the other way around. Nothing like adding a load of bureaucracy to a system which is already tried and tested and making out that it's something new.
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