Collapsed property transactions are estimated to cost £270m per year and the Ministry of Housing, Communities and Local Government (MIHCG) believe that a formal property reservation agreement would give both buyers and sellers confidence of each other’s intent.
The Home Reservation Agreement is designed to lockdown property transactions as soon as an offer is accepted. Both parties sign the home reservation agreement with the buyer paying a deposit at the time. Should either party then back out of the transaction, a penalty is paid by the seller if they are at fault, while buyers would forfeit their deposit. The amount is not yet set but expected to be no more than £1,000.
The fundamental parameters of the reservation agreement have yet to be fully defined. The amounts required to be put down have not yet been agreed, equally, the circumstances whereby the deal may be revoked without penalty (eg. bereavement or unemployment) are not yet clear. The concept, however, is here to stay.
The MIHCG believes it has public backing for the move, claiming that 50% of buyers and 70% of sellers are willing to participate in the scheme.
The crucial aspect for all parties is that this is a statement of intent. Both buyer and seller are showing their commitment to the process, gaining some certainty that the transaction can complete.
Most sellers are buyers themselves and very few are able to become part of a chain without having a deal in play for their own sale. This house reservation agreement intends to remedy that issue; allowing sellers to move confidently and to put them in a stronger bidding position.
The government’s plans to introduce a real estate reservation agreement into the home-buying process took a step closer in January.
Speaking at The Guild of Property Professionals annual conference, Matt Prior, the MIHCG lead, announced that a first draft of the proposed property reservation agreement has been issued.
A trial run of the home reservation agreement is expected to take place during late 2019.
“At this stage, the proposals are very much in their infancy, a copy of the template agreement and formal guidance on how they should be used have not yet been issued but is expected later on this year. We understand that the Government have been working with Mischon de Reya to produce a draft and are now seeking initial feedback from stakeholders before starting a trial of the agreements.