Broker who lost his property at the last stage urges a Scottish-style revamp
A mortgage broker who is thousands of pounds out of pocket after the purchase of his first home fell through at the last stage, is calling for a change in the house buying process, to make it more aligned with the Scottish system.
Sam Hutchins (pictured left), specialist mortgage adviser at Blueberry Specialist Lending, believes the English system is dated and is overdue a revamp. His failed property purchase cost him around £6,000, including a £4,500 saving in Stamp Duty he would have made before changes come in next week.
“Our archaic system no longer fits a modern world and in no other industry would you find a process like this,” Hutchins urged. “There are likely hundreds of thousands of people who have been in mine and my partner’s position right now, and there will be countless more unless something changes.”
Hutchins and his girlfriend had their offer accepted on a house in February. There was no onward chain and the property was the vendor’s holiday home, so it promised to be a relatively straightforward transaction. “Myself, our solicitor and our mortgage lender had worked extremely hard to move swiftly on the purchase so we were able to beat the Stamp Duty changes coming into effect at the end of the month,” he explained.
The couple were due to exchange and then complete the week afterwards, when the estate agent called to say that the vendors had pulled the property from the market and wouldn’t be proceeding with the sale. The buyers had spent around £1,650 in legal costs, and extra money on furnishings for the property, as well as devoting hours of time to arranging paperwork and other related tasks. “The reason for the vendor pulling out was due to what was described to us as an emergency,” said Hutchins. “I do hope everything on their end is OK. Regardless of the reasoning for any vendor pulling out, it can leave buyers devastated and out of pocket.”
Hutchins believes that the English property market could benefit from a system similar to the one in Scotland – and Stephen Brown (pictured second from the left), head of intermediaries at Scottish Building Society, agrees. “The Scottish system provides greater certainty,” Brown told Mortgage Introducer. “Once an offer is accepted and the missives - legal letters - are concluded, both parties are legally bound. This bind typically happens earlier in the process giving comfort to all parties. This reduces the risk of last minute withdrawals and provides more confidence to both the buyer and seller. From a consumer standpoint, its undoubtably stronger.”
He added: “The situation you have described is unfortunately all too common in England, where the current system allows either party to withdraw from a transaction right up until exchange of contracts. This can lead to significant emotional and financial costs, particularly for first-time buyers, as in the case you have outlined.”
Steven Carruthers (pictured centre), business development director of mortgages at MSO, acknowledged that the Scottish house-buying process is often seen as more straightforward and less stressful than the English process. “There is no gazumping, which is a common issue in England,” Carruthers said. “In contrast, in England an offer is not legally binding until exchange of contracts, which means the deal could fall through at any stage. In Scotland, the process of buying a house typically involves a date of entry, which is the date when the sale is completed, and the buyer can move in. This is agreed upon early in the process, and everyone knows when the sale is likely to be finalised. In England, the timeline can be more unpredictable and often includes lengthy delays, with no fixed completion date until the exchange of contracts.”
The concept of a property chain is also less common in Scotland, according to Carruthers. “This is because many buyers are required to have the funds in place before making an offer and, in the case of cash buyers or buyers with pre-approved mortgage offers, there is less dependency on others,” he said. “In England, chains are more common and can cause delays or complications.
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The value of upfront documentation in the homebuying process
Aberdeen-based broker Amanda Law (pictured second from right) highlighted the value of the Home Report – a legally-required document for properties on the market in Scotland; designed to provide buyers with essential information about the property’s condition, market valuation and energy efficiency. Sellers must provide this report within nine days of a request, helping buyers make informed decisions before submitting an offer. “Everyone must have one before putting their property on the market, unless of course it’s a newbuild,” said Law, “so we know exactly what it’s valued at before the client even puts an offer in. It also helps flag any potential issues with a property. Having these available to us results in a much smoother process, less issues and down values also.”
The Scottish process puts tremendous pressure on buyers and brokers in the early stages to get their financing put in place fast, according to James Rice (pictured right), director of The Mortgage Finance Store, based in Greater Dundee. “The trade-off is early mortgage offers allow us to conclude missives early in the process providing everyone with not only the peace of mind that their transaction is secure, but the ability to - for example - book removals or give notice to landlords etc,” said Rice. “In extensive chains this pressure works its way down the chain but even in complex chains security can be provided quite early on in the process.”
One of the key factors, suggests Rice, is the security of knowing the true market value of a property in advance, through an up front Home Report. “The downside to this process is it has in turn slowed down the growth in the Scottish market by holding down prices even in a ‘hot’ market,” Rice said. “Surveyors are able to slow the rate of increase, which is great if you are a first time buyer, but not so good for existing home owners.”
Neil Bird, senior mortgage and protection adviser at Cara Mortgage Services, said most of his clients are in Scotland, but he has done a number of purchase cases in England over the years, so he has some experience of the English system. “In my opinion, the main benefits of the Scottish system are that an offer and acceptance in Scotland are viewed as legally binding, so once the property goes ‘under offer’ it has effectively been taken off the market,” Bird commented. “The transaction isn’t 100% binding until the exchange of missives, but it does give a higher level of certainty to both buyers and sellers.”
Home Reports are also important for a smooth transaction, suggests Bird. “Potential buyers are fully aware of any defects in the property, and the current market value, before they make an offer, all at no cost to the buyer,” he said. “In England the survey is carried out by the buyer’s mortgage lender after an offer is accepted and a full mortgage application is submitted, in many cases at the buyer’s expense. If the valuation comes in lower than the agreed price and/or it shows up hidden defects, then the mortgage may be declined or reduced, and the purchase may fall through with the buyer having lost money. In Scotland the average purchase tends to take 6-8 weeks, in England I believe it’s about 3-6 months.”
Bird added: “The main downside of our system, at least from the buyer’s point of view, tends to be the ‘Offers Over’ pricing system where properties are frequently sold for more than their current market value. Since mortgage lenders base their maximum lending on the lower of the purchase price or Home Report value, this makes it much more difficult for first time buyers with limited deposits to get on to the market.”
Sam Hutchins remains pragmatic about his experience and, as a broker, will use it to inform his work going forward. “I do like to try and take a positive from most scenarios, even when they can seem very negative,” he said. “This process has definitely allowed me to have a better understanding and even more empathy for what clients go through in the property purchasing process.”
