It’s no secret that the housing market is in a turbulent place at the minute, with eye-watering property prices and mortgage rates making it difficult to buy.
But even if you’ve got your finances sorted and are in a position to buy or sell a property, that doesn’t mean the process is going to be easy.
In this article, we look at some problems plaguing the homebuying system in the UK, from legal loopholes to merciless mortgage lenders, featuring stories from Rest Less members.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
Buyers and sellers pulling out at the last minute
One increasing problem is the number of deals collapsing at the last minute, and the lack of consequences for those affected when this happens. While plans inevitably change and there are many reasons why someone might have to pull out of buying or selling a home, it can put the other party in a really tricky position, particularly if the change of plans isn’t communicated to them promptly.
Research from Moverly saw the threat of a deal collapsing named as the second most stressful part of moving house, ranked behind the actual process of packing and organising your things.
One Rest Less member shared their experience trying to sell their home, only to have buyers drop out late into the process.
“I had decluttered, got rid of a lot of stuff, paid deposits and so on, and had to go backwards and forwards changing addresses.
“These would-be purchasers strung me out for a long time and have withdrawn without penalty, not even an apology. I signed contracts twice but solicitors feel there is nothing they can do further in terms of a claim or compensation, as believe it or not after all that time these other parties had not signed.”
Another member trying to move out of London said they had lost £2,000 in fees from deals that had fallen through, and reported similar experiences from friends.
In English law, a property sale only becomes legally binding when both parties sign contracts and these are exchanged between solicitors. This usually occurs quite late into the process – after searches, inspections and surveys are all performed, the buyer has a mortgage offer in writing, there is an agreed completion date, and buildings insurance has been arranged. After both parties have signed and the solicitors have exchanged contracts, the sale becomes legally binding and neither party can back out without incurring penalties.
This means that a lot of time, money and effort can go down the drain if one party chooses not to sign at this stage.
Once contracts are exchanged, penalties for pulling out are far more severe for buyers than sellers. If a buyer pulls out after contracts are exchanged, the seller can keep their deposit and sue for costs and difference in value from the next offer they find. However, if the seller pulls out, the penalties are not as severe. They have to return the deposit and cover the cost of returning documentation to the seller and cancelling the contract, but the buyer is not entitled to sue. This could be considered unfair, as having a seller drop out late into a sale can arguably be just as inconvenient as a buyer doing so.
There is a widespread belief that the law in Scotland is stricter in this regard, and that it is much harder to pull out of a property sale, though this isn’t necessarily the case.
In Scotland, a house sale becomes binding through a process called ‘concluding missives’, which is similar to contract exchange, and also takes place after inspections have taken place and funding for the purchase has been secured. It is only after this point that pulling out of a sale can result in direct penalties for you (the cost of re-marketing the property, the difference between your offer and the offer the seller accepts next, and potentially the costs of any loan the seller has to take out to fund a purchase they committed to based on selling the house to you).
However, if you pull out of buying a property between having your offer accepted and concluding missives, your solicitor may refuse to submit another property offer for you. So there is at least some kind of incentive to make sure you are set on a particular property and to go through with a purchase once your offer has been accepted.
Many feel that the whole of the UK should adopt laws that commit both buyers and sellers to a property sale earlier in the process.
Delays caused by property chains
A property chain refers to any situation where a property sale going through relies on another sale being completed first. For example, if person A wants to buy person B’s house, but person B needs to buy person C’s house and complete their own move before this can happen, that is a property chain.
Of course, when you have a process as complex as homebuying, multiplying it into a property chain can be a real nightmare. For example, if there is a problem with person C’s house that they need to fix before person B can move in, then this could have a knock-on effect and delay person A’s move as well, even though it is a completely separate sale to theirs. The longer a property chain is, the most susceptible it is to these kinds of delays.
Conveyancing nightmares
A conveyancer is a solicitor who specialises in property law, and they are a vital resource when buying a home and dealing with the considerable paperwork involved.
Unfortunately, however, there’s no strict requirement for conveyancers to act within a certain timeframe during any part of the sale process other than where particular dates have been specified (such as getting everything ready between contract exchange and completion), and it’s not uncommon for people to go a long time without an update from their conveyancer. When you consider that there are usually two conveyancers involved in a house sale – one acting on behalf of the buyer and one for the seller – you can see why it can take a while for anything to get done.
In Moverly’s study, both uncertain time frames for moving and the pain of chasing up solicitors ranked highly as the most stressful parts of moving house.
It’s well worth finding a good conveyancer who is both trustworthy and communicative, so that you don’t feel out of the loop on your own house purchase. You can read about how to find one in our article How to find a good conveyancer or solicitor.
The leasehold system
Most people associate buying property with having total ownership of your home, but there’s a big difference between buying a property freehold – where it really is all yours – and buying it leasehold, where you are leasing it from the freeholder. There may, for example, be some limits around what you can do with the property, and there are a few ways that a property with a lease attached can end up being difficult to buy or sell.
For example, many lenders are reluctant to offer a mortgage on a property with a short lease, as they are considered lower value and are harder to sell. Generally, a lease with fewer than 70 or 80 years left is thought to be cutting it quite short. If you are seeking to sell a property that you currently own a lease on, it could be worth negotiating with the freeholder to extend the lease, or seeing if they might be prepared to sell you the freehold, as this will increase the home’s value and make it easier for buyers to obtain a mortgage.
Length of lease is not the only problem, however. One Rest Less member remarked: “[There is a] big issue with mortgages not being given for flats with slightly too high ground rent, stopping so many purchases and thus chains.”
Ground rent is a regular payment charged by the freeholder of a property to the leaseholder. It’s not at all uncommon for a mortgage application to be rejected because the ground rent being charged on a property is too high, or because it will increase in the future. Lenders may be wary about the leaseholder’s ability to make mortgage repayments on top of their ground rent, or worry that a high ground rent will be unattractive to future buyers.
While the Leasehold Reform Act means that ground rent cannot be charged on new leases bought after 30 June 2022, it is still charged on many leases set up prior to this date. The abolition of ground rent is a good step in the right direction, but there are still a huge volume of properties on older leases with high ground rent attached.
Another member also nearly had their purchase scuppered by esoteric ground rent rules: “Our whole purchase nearly fell through because no-one had ever collected the ground rent, which was £1 a year. The lender said that this technically meant the management company could have a claim on the property, so they said they wouldn’t offer us a mortgage unless we had a legal document drawn up which gave the lender protection against this happening.”
You can read more about how leaseholds work and how to extend a lease in our article What is the difference between leasehold and freehold?
Strict mortgage requirements
Conveyancers aren’t the only party that can slow down a house sale – mortgage lenders can be really strict about the types of property they will offer a mortgage on, and also have tight affordability rules to make sure buyers don’t take on mortgages they might struggle to pay for.
We’ve already seen how lenders might be picky about properties because of the terms of the lease. But there are a plethora of features of a property itself that might make them reluctant to lend as well.
Generally speaking, lenders will be unwilling to grant a mortgage if they feel like the property could lose value or be hard to sell later on. Sometimes this can be reasonable, such as if the property has Japanese knotweed and there’s no treatment plan in place, or if the property suffers from subsidence.
But some other reasons, such as the property being above commercial premises or having a perceived safety risk like an unused swimming pool, arguably lean towards being quite harsh.
After the Grenfell Tower fire in 2017, lenders became much more reluctant to offer mortgages on flats with cladding. However, following the introduction of new guidance on cladding earlier this year, lenders may be more amenable to granting mortgages on these properties, though homeowners will have to prove that cladding will be removed. Read more in our article Banks to start lending on flats with cladding.
You can read about more reasons why lenders might reject a mortgage application in our article 10 reasons you might not be able to get a mortgage on a property.
Gazumping and gazundering
No, we haven’t made these words up. Gazumping and gazundering refer to underhanded tactics sometimes used by homebuyers to get ahead in the current cut-throat property market.
Gazumping is when another buyer successfully makes a higher offer on a property that is already midway through a sale, before contracts have been exchanged. Since the sale is not binding yet, as we have seen earlier there are no real consequences to the seller for pulling out and taking the higher offer, leaving the first buyer back at square one.
Research by Market Financial Solutions indicates that a whopping 31% of UK homeowners lost out on a property due to gazumping in the 2010s.
Gazundering, meanwhile, is what happens when a homebuyer reduces their offer on a home at the last minute before contracts are exchanged, putting the seller in a position where they either have to accept the lower price or end up at square one, having wasted their time. This can be particularly pernicious if the seller is relying on the completion of the sale to make their own move.
Neither of these practices are illegal. The existence of gazumping only goes to further make the case that proper penalties should exist for sellers who abandon a sale midway through, while the practice of gazundering suggests that there could stand to be some system for fixing a purchase price earlier in the sales process (if there’s nothing wrong with the property itself).
Mortgages rates shooting up
The jump in UK inflation witnessed over the past year has resulted in a series of interest rate rises, which have aimed to dampen rising living costs.. These rate hikes have been a massive blow to mortgage holders, who are faced with a scarcity of competitive fixed-rate deals and unappealing standard variable rates (SVRs) from their existing lenders.
A homeowner who was fully capable of making their mortgage repayments a few years ago may now be struggling to stay on top of repayments, and might even have to consider downsizing if remortgaging to an attractive fixed-rate deal remains difficult. You can read more about the current state of the mortgage market and the options available to you in our article Mortgage market mayhem: what it means for you.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
Identity thieves stealing properties
This is a fairly niche scenario, but it does expose a lapse in the right checks being made on property sellers. A recent case in the UK saw identity thieves successfully sell a property that did not belong to them while the owner was away, and as of last October, the buyer still owns the property, even though it was sold to them under false pretences, with the original owner still fighting to get it back.
This is very hard to do on a primary residence, or a property that still has a mortgage out on it, but for an unencumbered second home, then it is – frighteningly – theoretically possible.
We can hope that this recent case spurs some changes to the law meaning sellers have to do a bit more to prove they are who they say they are, and actually own the property they’ve put on the market! For now, however, you can read more about the case and how to protect your property against this from happening in our article Could identity thieves steal your property?
Rest Less Money is on Instagram! Check out our account and give us a follow @rest_less_uk_money for all the latest Money News, updated daily.