The “antiquated home buying process” in the UK is costing consumers and the economy at least £1.5 billion every year - more than the government’s own estimates - research suggests.
Around half a million home sales collapse per year and while this may have a financial toll on those looking to buy a property or sell their house, it also has implications for the wider economy.
The property market is often criticised for high house prices and poor supply, but it is even tricky to buy a home, with buyers and sellers both able to pullout up until contracts are exchanged without any consequences.
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This can leave both sides of a deal with a large legal bill with nothing to show for it as well as the wasted time.
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A new report from Santander suggests almost one in four people will have experienced a property chain fail and the bank is calling on the government to take action to fix the UK’s broken housing market.
David Morris, head of homes at Santander UK, said: “Buying a home should be a moment of excitement and hope, but for too many people, it’s an uncertain and exhausting process, that drains their mental, emotional and physical health."
What is wrong with the UK housing market?
Saving for a mortgage deposit to get on or to climb the property ladder is hard enough but critics often highlight that there is no certainty in the UK’s housing market.
Even once you find a suitable property and make an offer, nothing is legally binding until you exchange.
That does have some benefits as it gives time for conveyancers and surveyors to spot any issues with the property.
This highlights one major issue with the market.
Despite rules that estate agent listings should display property risks and material information, many don’t. This is sometimes blamed on the agent not asking and the seller not providing the information.
Even if you find a property and get an offer accepted, there is no guarantee that you wont be gazumped at the last minute by a higher offer.
Alternatively, buyers may try to cut the asking price at the last minute, known as gazundering.
Once one deal collapses, it can affect a whole chain of other sales.
The report - Fixing the Broken Chain - based on independent economic analysis from WPI Economics and a survey of more than 2,000 consumers by JL Partners, highlights that 23% will have experienced a property chain fail.
The report estimates there are 530,000 failed housing transactions each year in England and Wales.
This has direct costs to consumers, who will have spent money on mortgage and solicitors’ fees that cannot be recouped, which is thought to be worth £560 million annually.
Santander said this is 40% higher than the £400 million estimate used by the Government earlier this year.
The research reveals that approximately 85% of people who experienced a transaction reported some sort of financial loss. While the average cost stands at £1,240 per failed recent transaction, one in five people reported losses in excess of £2,000.
However, the impact is not just limited to consumers. The repercussions on the broader economy include the loss of work output due to stress and the time taken to buy a property within work hours (£380 million per year), the cost of people’s reduced wellbeing (£400 million) and wasted leisure time (£170 million).
That takes the total hit to the economy to £1.5 billion.
How to fix the UK housing market
The main issue with the homebuying process is that the longer it takes, the more people get frustrated and potentially pullout or seek better offers.
There are also risks that buyers pullout of a deal if information emerges that wasn’t previously disclosed.
There are ongoing attempts to improve the homebuying process through government-backed industry groups and calls for more upfront information so buyers know what they are getting into before making an offer.
Estate agency brands Connells and Yopa recently signed up to an industry charter that pledges to move towards 28-day exchange times by encouraging more upfront information and communicating digitally rather than relying on the postal system.
The challenge with this is the charter only works if all agents and every property professional in the chain, including conveyancers and mortgage brokers, are signed up.
Santander has also suggested more upfront information and digitisation would improve the process
But it also wants illegitimate gazumping and gazundering to be disincentivised.
The bank has also suggested that a government-owned, centralised property data system should be created to make it easier to find information on properties.
Morris added: “The homebuying journey is still operating in the confines of a framework that was established a century ago. This antiquated system is an increasingly heavy anchor weighing on the economy and fixing it must be key.
“While the government has put the housing market firmly on its agenda – as this research shows - the scale of the challenge remains largely under-appreciated, and that’s why we’re calling for powerful reforms to give buyers and sellers more confidence, ease the financial and emotional strain and create a housing system fit for the needs of today’s consumers and economy.”
