Sellers lose more than £600m a year in property ‘fall throughs’

The property business is booming. Homes are changing hands for record prices, buoyed by tax breaks and cheap borrowing. Deals are being done at record levels. So far, so familiar. Nobody say the word “bubble”.

But what about those that fall through?

We waste more than £607m and 14 million days every year on property transactions that fall through, according to home-buying platform Yes Hombuyers. And lots of them do every year.

Almost a quarter of all the deals done don’t get as far as completion. That’s the equivalent of more than 225,000 every year, though some specialists put the figure at closer to 30 per cent of all accepted offers in England and Wales.

Remarkably, though, even that figure is down on the near 40 per cent of deals that have failed in the preceding years, often because mortgage problems cropped up after a tightening of the lending rules.

Other mortgage problems can arise if the property is valued at less than first thought, leaving the buyer with the prospect of trying to renegotiate or fill the gap in the finances somehow.

Gazumping, a growing risk in the current climate, is another infamous reason for “fall throughs” – when the seller accepts a higher offer elsewhere despite having already agreed a price and sale with a buyer.  

A break in the chain or problems with the property survey also regularly mean the agreement fails. Historical data from consumer group Which? suggests one in five deals fail because the buyer can’t sell their existing home after agreeing a deal on their next step on the ladder.

And with seller advice service The Advisory currently reporting an average of nine weeks or 63 days between listing and accepting an offer, plus another 11 weeks to complete, some vendors and buyers simply lose patience.

But few sales collapse quickly, and by that point both parties have already incurred costs. Campaign group the Homeowners Alliance calculates that sellers alone will have incurred legal and conveyancing fees, survey costs, legal search costs and more worth an average of £2,700.

“While we can arguably boast one of the most attractive property markets in the world, the lack of certainty that plagues the actual process of transacting is unacceptable, to say the least,” says  Matthew Cooper, founder and managing director of Yes Homebuyers.

“It’s quite remarkable that we are yet to address the failings of the current property selling process, given our obsession with buying and selling homes, and until changes are made, transactions will continue to fall through at the expense of the nation’s home sellers.”

But everyone faces substantial costs when moving house and, with the market having experienced its busiest August in a decade, MoneySuperMarket last week put the figure at £700 in additional costs per move. That’s on top of agency fees, legal costs and any stamp duty.

The average Briton moves five times, the comparison site reports, so the little extras alone add up to almost £3,700 in total.

Before coronavirus demanded their attention, the government had announced plans to examine whether a “reservation agreement” could help reduce the number of properties failing to progress to completion because either party can pull out – usually with little consequence – at any point before that.

A reservation fee has been used for some time used by some agents dealing with new homes or high value property transactions. Such an agreement means the buyer effectively reserves the right to buy the property for a period of time by putting down a deposit. This is either a fixed amount or a proportion of the property value. The seller agrees not to sell the property to anyone else in the meantime.

The reservation fee is taken off the total price of the property at completion. But if the sale falls through without a very good reason – such as a bereavement, job loss, serious illness or the mortgage being refused – the cash is forfeited. Equally, the seller may lose cash if, for example, the property has serious undisclosed structural issues revealed during the survey.

The details of the system, which has long been on the radar and will be launched first as a pilot scheme,  being considered by the government could involve both parties placing a sum in an escrow account held by the legal advisers appointed to manage the transaction.

Experts suggest this amount could be £500 or £1000 per party. Should the deal fall through, the party at fault could see their fee lost entirely or the other party’s costs deducted before receiving the balance.

Property transactions in Scotland already reach a binding agreement once a price has been confirmed through formal offer letters sent through the parties’ legal representatives.