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Brokers back £1,000 ‘fine’ for collapsing a property sale

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  • 02/11/2017
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Brokers back £1,000 ‘fine’ for collapsing a property sale
Intermediaries have expressed support for a proposed fine for parties who back out of a housing transaction, but questioned whether the £1,000 currently suggested was a large enough threat. However, reservations were raised about how it would be enforced.

The Homeowners’ Alliance has called for the introduction of £1,000 ‘reservation agreements’ as a way to prevent housing transactions from collapsing. The body said currently around a quarter of proposed sales fall through, leaving buyers and sellers significantly out of pocket as a result.

In order to tackle this, the Homeowners’ Alliance has proposed an agreement where both buyer and seller agree to pay the other party £1,000 should they pull out. This would be agreed at the point of a price being agreed, so before either side pays any money.

According to the Alliance, such an agreement would force both buyers and sellers to be more “transaction ready” when entering the market than is currently the case.

 

Tackling uncertainty

Rachel Lummis, mortgage advisor at Xpress Mortgages, described a reservation agreement as a “great idea”, noting it would show more commitment from both parties and take out some of the uncertainty.

She continued: “If the other party pulls out and has to pay £1,000, that may well go to cover some of the costs that have been borne and compensate the other party, but it won’t alleviate the anxiety and stress that’s been caused.  This doesn’t quite go far enough, but is a step in the right direction.”

 

You should stick to an agreement

James Mole, head of mortgages at Gingko Independent, suggested it could make a “huge difference”.

He continued: “I have witnessed many a transaction collapse due to people pulling out at the last moment, without a care for the other parties involved. In my opinion if you make a deal you should keep your side of the agreement.

“I think the £1,000 figure may need to be tweaked so there is more of a range that is in line with the purchase price. If you are buying a high value property, £1,000 is likely more of a drop in the water compared to a starter home.”

 

Enforcement concerns

However, David Sheppard, managing director of Perception Finance (pictured), warned that such an agreement would be difficult to enforce as there would need to be some circumstances in which it was not charged.

He explained: “If a buyer wishes to pull out of a purchase due to a survey or legal issue with the property that was not known prior to putting in an offer, then this would need to be built into the rules of the scheme and thereby there would need to be an arbiter to oversee this adding to the cost to the industry. Personally I think that the purchases that fall through happen for a reason and trying to penalise one party for this is not the way to go.”

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