Stamp duty holiday: could the market be more vulnerab...

The Chancellor’s recent announcement that the stamp duty holiday would be extended for another three months was undoubtedly great news for the property market.

The stamp duty freeze, which started in July 2020 and was initially due to end on March 31, exempts the first £500,000 of all property sales from stamp duty and has been widely praised for giving the market a much-needed boost during various states of lockdown.

The savings - around £15,000 on average - have already had a significant impact on the property sector, helping thousands more first-time buyers get onto the property ladder.

According to the Centre for Policy Studies, the stamp duty holiday has already helped push house sales to their highest level since before the 2007 financial crisis, while ONS figures reported that the average house price reached record high of £252,000 in December 2020, a result of the stampede to beat the original deadline.

However, with lockdown and the associated restrictions slowing property transactions down in recent weeks, there were widespread fears that thousands of sales would fall through if buyers believed they were going to miss the all-important March 31 date with Rightmove estimating that around a quarter of the 412,000 sales agreed in 2020 that were still in the legal process would struggle to complete without an extension.

Stamp duty extension could result in 300,000 more transactions

So, in an attempt to give homebuyers the time they needed to complete their deals and maintain the much-needed activity in the market, the chancellor announced that the freeze would be extended until June 30.

Furthermore, he said that even after the new deadline, there would be a tapering of the incentive, with the stamp duty exemption kept at double its standard level (£250,000) until the end of September and not to return to £125,000 until October 1.

There is no doubt that the extension will help to further boost the market with Rightmove estimating this latest extension could result in an additional 300,000 property transactions.

The shift to online

While the property market has been allowed to continue to transact during the lockdown, it is under strict instructions that as much should be done online as possible.

For online agents, this ‘shift’ caused no major issues, as the vast majority of transactions were done in this way already, but for the more traditional estate agents, suddenly having to adapt their ‘face-to-face’ model to meet social distancing rules has been tough.

Online viewings are never quite as good as the real thing, while the rapport built up with customers through face-to-face meetings is hard to replicate with a video call.

And while online meetings and viewings may not be the ideal way to find a new home, they do offer a perfectly acceptable alternative given the circumstances. However, there are other parts of the home buying process that cannot be so easily changed. For example, customer due diligence.

Increased money laundering risk

The property market is one of the most vulnerable sectors in the UK when it comes to money laundering.

In its recent National Risk Assessment Of Money Laundering And Terrorist Financing report, the government found over 500 properties in the UK that have been bought with suspicious wealth, with a combined value of over £5 billion, and that, said the report, is probably only a fraction of the real value of dirty money hidden in the UK property market.

In the last three years, the risk level of the property sector has moved from medium to high due to the large amounts of cash that can be moved through or invested in the sector, and the low levels of transparency.

Under AML rules, estate agents are required to have risk-based AML programmes in place, an essential part of which is comprehensive Know Your Customer (KYC) checks.

And while most agents do have AML procedures in place, many do not, while others rely entirely on manual identification verification - i.e. meeting the person face-to-face and comparing them with the ID documents they provide.

Therefore, the pandemic - which has forced estate agents to shift quickly to an online model -combined with the potential surge in interest the entire market is about to experience, could just be a perfect storm.

Where estate agents are rushing to get their online working practices up and running but do not have digital customer due diligence programs to match, they are inadvertently creating a fertile ground for property crime.

Combine this with the fact that the stamp duty holiday will result in huge volumes of would-be customers looking to buy before June 30, and estate agents will be under pressure to onboard quickly, which is bound to cause customer due diligence procedures to slip.

Criminals know this and will be more than ready to take advantage of the vulnerable position many are in, while others will be quick to exploit any struggling agents under pressure to secure a speedy sale.

An online solution for an online world

Agents who want to make hay while the sun shines don’t want to risk missing out on valuable business because of slow compliance, but equally they need to ensure they do not leave themselves vulnerable to money launderers by letting their AML slip.

The only real solution here is online customer onboarding. Digital platforms can run all the required onboarding checks remotely to verify a customer’s identity - including screening against sanctions and PEP lists.

All searches are then hosted and monitored on an ongoing basis, meaning just one system is needed to ensure all regulatory requirements are met. The best platforms will also offer facial recognition and customer liveness checks to further mitigate ID fraud.

Regulators already state that electronic verification should be used wherever possible, so it is likely it will become mandatory for all regulated businesses at some point. And while it shouldn’t take a global pandemic for estate agents to realise the benefits of online verification, now is a better time than ever to take advantage of efficient customers onboarding and enhanced security.