More than one in three home purchases fell through in the last 12 months, with potential buyers typically ending up paying £2,000 out of pocket.
According to data from the online property platform Smoove, 34 percent of property transactions ultimately did not go through.
The problem may stem from a saturated real estate market with a lot of competition, as the research also revealed that searches for new properties by prospective buyers were up 36 percent year-over-year.
The figure jumps to 54 percent for first-time buyers, according to the company’s inaugural Home Moves Report.
Out of pocket: Prospective homebuyers can risk losing up to £2,000 in survey and legal fees if their purchase falls through
The cost of moving houses, which buyers may not be able to fully recoup if a sale collapses, has also risen due to rising home prices and costs of living.
As buyer demand continues to grow, lawyers are facing capacity constraints, according to the report. It found that the average legal fee increased by 11 per cent or £140 in the last 12 months, from £1,273 to £1,413.
Homebuyer surveys have also risen in price, costing an average of £525, up 12.9% from £465 a year earlier.
So potential owners are paying almost £2,000 in associated costs – money that could be wasted if the transaction falls through.
Jesper With-Fogstrup, CEO of Smoove, said: “Moving can often be a harrowing and terribly stressful experience. The fact that few dispute this speaks to a failed system.
‘One in three home buying transactions should not fail. This figure represents tens of thousands of broken dreams and huge sums of money essentially down the drain.’
He said that the law must be reformed to prevent so many sales from collapsing.
Painful process: Inspection and handover delays have meant buyers have to wait a while before getting the keys in their hands, increasing the chance of failure.
‘Creating more certainty around real estate transactions is essential. It will likely require legislative reform to provide greater protection for buyers and sellers once offers have been accepted,’ he added.
“However, in the meantime, there are many things the industry could do to reduce stress levels and the proportion of transactions that fail.
“As we have seen, the sheer amount of time is a major factor of stress and uncertainty. The entire process requires significant digitization and automation, streamlining paperwork and alleviating pain points.
“People should be able to participate in the transaction process entirely online or through an app, providing digital IDs, signatures and forms, and seeing their progress in real time. This could really help modernize the industry and transform the experience of moving home.”
The reality is that the longer it takes to buy or sell a property, the more likely it is that the transaction will collapse.
Paula Higgins, Homeowners Alliance
Chris Sykes, chief technical officer at Private Finance, said the mortgage company had also seen an increase in failed deals.
He said it usually happens for one of two reasons. The first, she said, is concern about the UK’s general economic outlook that leads potential buyers to change their minds about moving and instead decide to stay.
The second is housing shortages, which means that one party in a property chain cannot find a house to move into, causing the entire chain to fall apart.
“I’ve heard from many clients that all the good properties are gone,” he says.
The time it takes for transactions to complete has also increased, rising 23 percent to 153 days, more than five months, since 2019.
How to avoid losing money if a sale falls through
A failed sale isn’t always preventable, but there are steps buyers can take to protect themselves if it happens.
Paula Higgins, executive director of the HomeOwners Alliance, says: ‘The reality is that the longer it takes to buy or sell a property, the more likely it is that the transaction will fail.
‘People’s circumstances change, which means they decide not to go ahead with the sale or purchase, or they may simply change their mind.
‘And since people can walk out without any financial penalty until the contracts are exchanged, frustrated buyers and sellers will find themselves penniless.
‘This is especially true for buyers who will have paid survey costs as well as mortgage arrangement and conveyance charges.
Insured: Potential buyers can purchase insurance to cover any loss if their home purchase goes down unexpectedly.
“Buyers can take out insurance to cover these costs in case the purchase fails. The basic product offers cover up to £1,500, with a premium offer that will pay up to £2,500 including hosting and storage fees.
Higgins also advises instructing a lawyer or conveyancing agent before making an offer on a home, which will speed up the process once you make an offer and limit the amount of time the other party can change their mind.
The 34 percent of transactions collapsing represents a 4 percent increase compared to before the pandemic.
Nathan Emerson, CEO of Propertymark, said: “On average, before the pandemic, around 30 per cent of property sales failed.
“The current lack of stock will be a contributing factor to the current average, as some buyers have been placing offers and then withdrawing if a property that better suits their requirements comes on the market.”
Staying on top of your paperwork and responding promptly to your bank’s requests is another way homebuyers can avoid delays.
David Hollingworth, of L&C Mortgage Company, says: ‘Buyers want to stay on top of everything throughout the process. From the mortgage aspect, having your supporting documents ready to have everything on hand, income verification, pay stubs will only help speed things up.
If things are delayed, you may find yourself in an administration queue, and providing information piecemeal could put you at the back of the queue every time.
For first-time homebuyers, Hollingworth also recommends estimating the associated costs when deciding what size deposit they can afford, and budgeting for a slight increase in the amount they’ll need to borrow should they need to increase their offer in order to maintain a purchase on the go.
“Because there is a lack of offer, some owners may receive more offers after accepting, for example, if someone unexpectedly shows up with a higher offer,” he says.
“With any chain, there’s always the potential for something to go wrong and have a chain impact.”
The best mortgage rates and how to find them
Mortgage rates have risen substantially as the Bank of England base rate has risen rapidly.
If you’re thinking about buying your first home, moving or remortgaging, or are a buy-to-let landlord, it’s important to get good, independent mortgage advice from a broker who can help you find the best deal.
To help our readers find the best mortgage, This is Money has partnered with independent broker L&C.
Our L&C-powered mortgage calculator can allow you to filter offers to see which ones best match your home value and deposit level.
You can also compare different fixed-rate mortgage durations, from two-year arrangements to five-year arrangements to ten-year arrangements, with monthly and total costs displayed.
Use the tool at the link below to compare the best deals, taking both fees and rates into account. You can also start an online application on your own time and save it as you go.
> Compare the best mortgage deals available now
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