HomeOwners Alliance calls for £1,000 ‘reservation agreements’ to tie in buyers and sellers

Anyone responsible for a property purchase falling through should have to pay £1,000 to the other side if they pull out.

The call has come from the HomeOwners Alliance, which says that fall-throughs are costing buyers and sellers over £500m a year.

It is proposing a £1,000 reservation agreement – a legally binding bond paid by both the buyer and seller and held by their own solicitor – in answer to the Government’s latest call for evidence into the home buying and selling process.

The organisation is also calling for estate agents to publish fuller particulars of sale for a property at the time it is listed.

The organisation claims that providing the TA6 particulars of sale form earlier, as well as introducing a reservation agreement, would iron out any problems earlier and speed up the process.

The HOA said: “Sellers will have to fill out TA6, the standard property information form which includes all material information such as length of lease and ground rent if leasehold, before the reservation agreement.

“This is simply good practice, and there is no reason they cannot do this before putting their house on the market and the estate agent can provide it to the buyer, and the estate agent can then provide those details to the seller before they make an offer.”

If a prospective buyer then decides to make an offer, a refundable reservation agreement would need to be paid by both sides to their respective solicitor.

Here is how the HOA proposes a reservation agreement would work:

– Before the reservation agreement, the buyer will need proof of funds such as a mortgage in principle. In the reservation agreement, the buyer’s solicitor will confirm to the seller’s solicitor that the buyer has sufficient funds.
– Both sides agree to pay the other side £1,000 if they pull out of the transaction for any reason.
– Both pay their conveyancer/solicitor a repayable £1,000 bond to cover the payment if they do pull out.
– If any previously undeclared material issues emerge during the surveys and searches that potentially affect the value of the property by more than 1%, then either side has the right to renegotiate. If they can’t agree a change of price, then the side that is detrimentally impacted will have the right to pull out without losing their £1,000 bond.
– If either side breaches their commitment to being a “genuine” seller or buyer – such as by putting the property back on the market, accepting a higher offer from another buyer, or the buyer putting in a lower offer after the sale price agreed, then they will be deemed to have pulled out of the transaction, and are liable to pay the other side the £1,000. If either side pulls out over matters that are financially less than 1% of the value of the property (eg over whether a cooker is included) they will be liable to pay the other side £1,000.
– If either side is worried about being able to afford the £1,000, they can take out home buyers/sellers insurance.
– There would need to be a backstop date for completion of the purchase, say three months after the reservation letter. If both sides want to continue with the transaction, they can agree to extend the deadline, but if one side has failed to meet their requirements, then they will be deemed to have pulled out, and have to pay the other side £1,000.
– Interpretation of a fall-through and any disputes should be covered by standard industry guidance, or failing agreement between the conveyancers, by the Property Ombudsman or the small claims court.
– Only those that cause the collapse of the chain will have to pay and will pay £2,000 if they are both buying and selling and pull out of both transactions at the same time.

The consumer group estimates consumers waste £500m a year on failed attempts to buy and sell properties.

It come to this figure using the Government’s call for evidence on the home buying process that claimed – without a source – that failed transactions cost on average between £695 and £744 for buyers, and £582 and £740 for sellers.

There were 1.24m property transactions last year according to the ONS, which the analysis then multiplies by 28%, which is the estimate of fall throughs by property buyer Quick Move Now.

This comes to 344,000.

It then adds the £744 and £740 figure to give a cost of £1,484 for both sides of a sale. This figure is then multiplied by the £344,000 to give an estimated sum of £511m wasted per year.

Paula Higgins, chief executive of the HOA, said: “This is the true cost of the UK’s not-fit-for-purpose home selling and buying system – home owners losing more than £500m down the drain every year.

“It is no surprise that some parts of the property industry have too often resisted previous government attempts at reform – this is extra business for them.”

‘Stamp duty is UK’s worst tax – scrap it to help housing market’

Stamp duty on property sales is gumming up the housing market, stopping people from moving to the jobs they need, and keeping people in houses that are too large for their needs, according to a free-market think tank.

A new report released by the Adam Smith Institute suggests that stamp duty is the most damaging tax Britain has, and scrapping it should be top of the Chancellor’s agenda in the run-up to the Budget on November 22.

The paper argues that stamp duty is deeply damaging to the UK housing market.

Economists in Australia found that a similar tax there was costing 75p for every £1 raised: the institute claims that with stamp duty costing British people £12 billion a year, this means the tax may cause as much as £10 billion worth of what it calls “deadweight losses.”

This happens because it says stamp duty gums up the housing market  by penalising people from moving house. While the lack of supply of new houses is still the biggest cause of the housing crisis, it is exacerbated by the duty stopping the existing housing stock from being used efficiently.

“By penalising older people for downsizing after their children have left home, for example, stamp duty stops larger homes from being sold to new families, making the effective supply of family-sized homes even tighter” says a statement from the institute.

“Since stamp duty creates a built-in cost to moving it also creates a roadblock to people moving from one part of the country to another to find work, trapping people in low pay and preventing them from advancing” it adds.

The institute’s analysis says that the UK is home to around £7.5 trillion worth of property, with homeowners taxed regressively against values last updated in 1991, and charged stamp duty at rapidly escalating rates. The report proposes instead to abolish stamp duty altogether, covering the cost by raising council tax bills on the most expensive properties in the country.

“This policy is probably the most effective tax cut the Chancellor could go for, boosting growth and improving the fundamentals of the housing market at a stroke” says the organisation.

Although the increased economic activity would likely offset some of the losses in the long-run, the paper suggests revaluing council tax and creating a new band for the most expensive homes as a way of making the move revenue neutral if necessary.

“Stamp duty is the worst tax we’ve got, almost as bad as setting fire to the money instead of raising it in tax. The reason is that Britain’s productivity problem is in large part a mobility problem. People cannot move to where the best jobs for them are because the houses aren’t being built, and that’s made even worse by stamp duty keeping older people in family homes that are too large for them.” says Sam Bowman, executive director of the Adam Smith Institute.

Brexit impact on property industry is one of 58 unpublished reports

It has been revealed that a paper on Brexit’s impact on the property market, prepared by a government department, is one of 58 sector analyses which so far remain unpublished.

The Department for Exiting the EU is now known to have prepared the 58 impact studies: they range from advertising to wholesale market and include one entitled Real Estate – this is believed to cover Brexit’s impact on residential and commercial property markets.

In total, the government says the 58 sectors analysed account for 88 per cent of the UK economy.

The full list – but no content – was released in the annexe to a letter from David Davis, the Secretary of State for Exiting the EU, to Baroness Verma, the Parliamentary Under Secretary of State for International Development.

Ministers have resisted calls to publish the impact studies arguing that some findings “would undermine the Government’s ability to negotiate the best deal for Britain” were they made public.