More than one in three home purchases have fallen in the last 12 months, with potential buyers ending up with £2,000 out of pocket.
According to data from online real estate platform Smoove, 34 percent of real estate transactions never end up moving forward.
The problem may stem from a crowded housing market with plenty of competition, as the research also revealed that searches for new properties from potential buyers were up 36 percent year-on-year.
The number rose to 54 percent for first-time buyers, according to the inaugural Home Movers Report.
Out of pocket: Prospective homebuyers can risk losing up to £2,000 in legal fees and survey fees if the purchase fails.
The cost of moving into the home, which buyers may not be able to fully recoup in the event of a sale collapse, has also risen due to higher housing prices and the cost of living.
According to the report, as demand from buyers continues to grow, lawyers face capacity constraints. It found that average legal fees had risen by 11 per cent or £140 in the past 12 months, from £1,273 to £1,413.
Prices also rose in homebuyer surveys, averaging £525, up 12.9 per cent from £465 a year earlier.
Consequently, potential homeowners pay close to £2,000 in associated costs – money that could be lost if the deal then falls through.
‘Moving home is often a terrifyingly traumatic and stressful experience,’ said Jesper With-Fogstrup, CEO of Smoove. The fact that few would argue with this speaks of a failed system.
Not one in three home purchase transactions should fail. This number represents tens of thousands of dreams shattered and huge sums of money basically poured down the drain.
He said the law needed to be reformed in order to prevent the collapse of the largest number of sales.
Painful process: Delays in scanning and transportation mean buyers may need to wait a while before they get keys in their hands – increasing the chance of falling out.
Creating more certainty about real estate transactions is essential. It will likely require legislative reform to provide greater protections for buyers and sellers once offers are accepted.
However, in the meantime, there are many things the industry can do to reduce stress levels and the percentage of transactions that get stuck.
As we have seen, the length of time is a major driver of stress and uncertainty. The whole process requires significant digitization and automation, speeding up paperwork and alleviating pain points.
People should be able to participate in the entire transaction process online or via an app, providing digital IDs and signatures, filling out forms and watching its progress in real time. This can really help modernize the industry and transform the experience of moving from home.
The truth is, the longer it takes to buy or sell a property, the more likely it is that the deal will fall through
Paula Higgins, Homeowners Alliance
Chris Sykes, technical director at Private Finance, said the mortgage firm had also seen a rise in deals that fell through.
He said it usually happens for one of two reasons. The first, he said, is concerns about the UK’s general economic outlook causing potential buyers to change their minds about moving and instead decide to stay put.
The second is a housing shortage which means that one party in the real estate chain cannot find a home to move into, causing the entire chain to collapse.
He says: “I have heard from many clients that all good possessions are gone.
The length of time transactions take to complete has also increased, up 23 percent to 153 days, more than five months, since 2019.
How to avoid losing money if the sale falls through
A failed sale can’t always be avoided, but there are steps buyers can take to protect themselves if this happens.
“The reality is, the longer it takes to buy or sell a property, the more likely it is that the deal will fall through,” says Paula Higgins, CEO of the HomeOwners Alliance.
People’s circumstances change, which means they decide not to go through with the sale or purchase, or they may simply change their mind.
Since people can withdraw without any financial penalty till the time the contracts are exchanged, frustrated sellers and buyers will find themselves out of pocket.
This is especially true of buyers who will pay the survey costs as well as the mortgage arrangements and conveyance fees.
Insured: Prospective buyers can purchase insurance to cover any losses if their home purchase fails unexpectedly.
Buyers can obtain insurance to cover these costs if the purchase fails. The basic product offers cover up to £1,500, with a premium offering that will pay up to £2,500 including accommodation and storage fees.
Higgins also advises instructing an attorney or conveyancer before making an offer for a home, which speeds up the process once an offer is made and limits the amount of time another party can change their mind about it.
The 34 percent of collapsed transactions represents a 4 percent increase from before the pandemic.
“On average, before the pandemic, about 30 percent of real estate sales were down,” said Nathan Emerson, CEO of ResperpetiMark.
The current shortage of inventory will be a contributing factor to the current average, as some buyers were making offers and then withdrawing them if a property better suited to their requirements appeared on the market.
Going through your paperwork and responding promptly to requests from your bank is another way homebuyers can avoid delays.
‘It pays for buyers to be on top of things all the way through,’ says David Hollingworth, of mortgage firm L&C. On the mortgage side, having your supporting documents ready to go so you have everything on hand, income check, and payslips will only help speed things up.
If things get delayed, you could get into an administrative queue, and providing information in a piecemeal fashion could put you in the back of the queue each time.
For first-time buyers, Hollingworth also recommends making an estimate of the costs involved when determining how much deposit they can afford, and budgeting for a small increase in the amount they’ll need to borrow in case they need to oversupply in order to keep the purchase on track.
“Because there is a shortage of supply, some homeowners may get additional offers after accepting them, for example if someone unexpectedly entered with a higher offer,” he says.
“With any series, there is always the possibility that something will go wrong that will have a knock-on effect.”
Best mortgage rates and how to find them
Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.
If you are looking to buy your first home, move or remortgage, or are a buy-to-let owner, it is important to get good 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 an independent, no-fee L&C broker.
The Mortgage Calculator backed by L&C allows you to filter deals to see which ones fit your home value and deposit level.
You can also compare different durations of mortgage rates, from two-year fixes, to five-year fixes and ten-year fixes, displaying monthly and total costs.
Use the tool at the link below to compare the best deals, factoring in fees and prices. You can also start an online application on your own time and save it as you move forward.
> Compare the best mortgage deals available now
Some of the links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to influence our editorial independence.