Reservation agreements, whereby home buyers and sellers are “locked-in” to a transaction, could be trialed by March 2020 as the government has recently pledged to fix what it considers to be a ‘broken’ housing market and to make the buying and selling process quicker and less stressful.
It is estimated that the homebuying process takes around 20 weeks. Matt Prior, who has led home buying and selling work at the Ministry of Housing, Communities & Local Government for the last two years said: 'You've got a process that lasts 20 weeks. Why not try to lock people in a lot earlier? You have people who have tried to move two or three times, the buyer pulls out days before exchange and the conveyancing chain falls apart, it's heart wrenching.'
Buyers and sellers would be asked to put down money to enter into the agreement. It is likely that different variations of reservation agreements will be tested - for example, some may have a non-returnable deposit of £500 put down by the buyer, while others may have a £1,000 sum. Others may involve no advance payment at all. Buyers would get some of their money back if the purchase doesn't happen. Acceptable reasons for pulling out could include a bereavement, job loss, inability to get a mortgage or if the property is deemed unmortgagable.
Prior said the ministry is exploring links between the work being done on reservation agreements with work on making sellers provide some property information upfront. Ministers will then be asked if they want to test reservation agreements. 'If they agree, we hope to run a field trial in the first quarter of next year,' Prior said.
Reaction to the announcement of reservation agreements has been mixed. Will they put even more pressure on first time buyers and more pressure on consumers in times where they do not have a lot of spare cash? If the sum is too low then it will not act as a deterrent, but too high and it will cause people to stall. Confusion has already arisen over the rules about holding deposits on behalf of property sellers and at what point in the home buying and selling process is the sale agreed. This suggests that many aspects need to be ironed out, but of course it is still a trial and the devil will be in the detail.
Frank Smith & Co Solicitors, 01242 801748 and www.franksmithandco.com