This week we saw yet another example of how the UK property system can have a major impact upon an individual’s wealth, business and future. There was yet another story of a would-be buyer of a major property asking for various conditions, exclusive rights to the property and then ultimately pulling out just before the contracts were due to be signed. There are hundreds if not thousands of similar examples whereby sellers act in goodwill and buyers can often get cold feet or disappear for a number of reasons just prior to signing the contract.
Is it time to introduce deposits?
There are many different systems around the world including the French property system whereby a potential buyer is forced to put down a 10% non-returnable deposit. This effectively means that if the buyer pulls out for any reason then the seller retains the deposit which very often separates the potential buyers from the serious buyers. The system is ultimately flawed in the UK because potential buyers can ask for a variety of conditions, exclusivity and other actions which are often agreed to in good faith.
The unseen cost of buyers backing out
While there is an obvious cost to the seller of a property when a potential buyer backs out, very often at the last minute, there is more to this than meets the eye. The UK system supports a chain of property transactions which can take in a number of sellers and buyers. Ultimately, if one of the buyers was to drop out then this would potentially cause the seller to withdraw from a replacement property purchase thereby impacting that seller, etc, etc. This can very quickly turn into a vicious circle and a very expensive exercise which ultimately brings nothing in return.
Quote from PropertyForum.com: “The UK property market is often dominated by London which is head and shoulders above the rest of the UK real estate sector. If you dig a little deeper, you will see that while there has been a general recovery in UK property since the 2008 worldwide recession the rate of growth is nowhere near that seen in London. As a consequence there are a number of reasons to invest in UK property such as: –”
It is high time that the UK authorities considered the idea of a non-refundable deposit which would effectively focus the eyes and minds of potential buyers and also potential sellers. It is all good and well to hedge your bets and place bids on a number of possible property purchasers, ultimately withdrawing from some to leave the most sought-after property, but this is not fair on sellers.
Would this affect market volumes?
The introduction of a deposit system would quite simply separate the would-be buyers from the serious buyers and is unlikely to affect market volumes in the long-term. The simple fact remains that if you are serious about acquiring a property then the introduction of the deposit system will focus your mind and likely lead to more deal closures. It would also give potential sellers the confidence to enter the market, perhaps give up some of their options and ultimately accept conditions from the buyer in order to complete the transaction.
Quite why the UK authorities have not taken this on board is a mystery because the bottom line is that those serious about buying a property would have no qualms about putting down a deposit even if it was non-refundable.