In recent years, buying a house and getting the keys has reportedly been increasingly difficult. Marcus Whewell, CEO of The Guild of Professional Estate Agents, asks why and considers if the UK needs a new approach how property transactions are governed.
One of the more remarkable statistics about the UK residential property market is that almost a third of sales agreed never actually complete. I can’t think of any other business which has such a high fall out ratio, and no other developed country can report such an unenviable statistic.
Some sales collapse for exemplary reasons, where for example a vendor’s or buyer’s circumstances change unexpectedly. However, a significant part of this is due to the time taken – currently an average of 12-14 weeks (but can be much longer for a long chain), which introduces many more variables into the process. This not only means wasted costs, but lives are put on hold and valuable opportunities are missed.
Don’t say it too loudly, but almost every good estate agent can secure some sort of offer in a market where instructions are in such short supply – maybe even the ‘DIY portals’. However, this is where the hard work begins and professionals earn their fees. This may be news to the general public, which highlights how ineffectively the industry markets its expertise and value (as opposed to cheap fees).
So given that transaction numbers have been relatively predictable for some years, where are the pinch points?
Searches can take up to 12 weeks* because some processes are still manual as opposed to automated. Such a low level of service should be unacceptable, and maybe SLAs should now be introduced with fines and compensation for poor performance.
Solicitors normally undertake much of the legal work, but conveyancing capacity in the UK has shrunk by approximately 5% in the last two years. Consequently, surges in demand, as seen recently prior to the additional stamp duty for ‘buy to let properties’, can cause significant problems. Solicitors are loath to turn business away and so another blockage is created. Buyers and vendors do not always understand the process and agents are often left to try to explain, and in some cases, also take the blame. Maybe solicitors’ fees could be flexed, so that they are rewarded for service and encouraged to invest in more capacity?
Securing a mortgage is normally relatively straightforward (as long as the buyer has a good credit score and a suitable deposit); but the process of checking individuals’ creditworthiness is not very rigorous and needs overhauling. In fact, some people can get a higher score for having been in debt compared to those who have not, and scores can even be affected by another family member, such a child not paying their mobile phone bill.
Most buyers will require a survey to secure a mortgage. As the number of surveyors in the UK falls and their own insurance liabilities increase, there is a natural tendency for them to undervalue, thereby delaying or risking the loan application. Also, to reduce fees, so-called panel surveyors are employed from out of area and paid relatively low sums to value the property, often with little local knowledge or experience, again risking under valuations.
In a market of perceived changing prices (fed by the popular media), such delays can lead to frustration and reassessments - and buyers and vendors may decide to pull out if they think the deal is no longer the best on offer, or try to renegotiate. Some estate agents will even whisper in their ear that ‘you can now do even better by remarketing your property’, but who pays the costs incurred? This is wasted money on aborted transactions that could be invested in higher levels of marketing and service. Why not ask for a bond from both sides to demonstrate commitment, subject to survey, returnable on completion?
In 2007 the Government attempted to improve the house buying process with mandatory HIPs (Home Improvement Packs), but these were withdrawn in 2010 after widespread opposition (mainly around cost, implementation, and lack of substance). The idea was not all bad, but poorly executed, with the various problems flagged by leading estate agents before the launch. Some even blame the 2008-9 housing crisis on this initiative by unnecessarily deterring vendors from marketing their properties.
So the market process is remarkably agricultural, and wastes literally hundreds of millions of pounds a year of the public’s and private businesses’ money. Good estate agents will find the best local partners and try to shave time off the process, but this is not a structural, long-term solution.
The fundamental question is whether the industry and Government want ‘cheap and cheerful’, with public perception of excessive competition driving lower costs, but with relatively high levels of frustration and failure – or a more professional approach where the transactions process is undertaken in a timely and proper way. Not all markets work better with minimal regulation.
If the Housing Minister wants to make a real difference, can I suggest that he only needs to focus on two areas:
• Release more brownfield land for housing development (the Government has the largest stockpile).
• Review the residential buying and selling process via an open consultation with the experts who suffer from its various fault lines, and probably know more than anyone else how to make substantial improvements.
*Observed in Estate Agent Today on 25.6.16