Letter: Conveyancing: how to fix the system?

I believe that the current domestic conveyancing system in Scotland is broken and needs to be improved. Today it is normal for a purchaser to offer for a house, but then not to conclude the bargain until (a) they have a conclusion for their own house sale, and (b) they have an offer of loan on the table from their lender. This causes a fair bit of stress for solicitors who are caught in the middle trying to juggle the demands of a seller looking to conclude the bargain, and the purchaser wanting to buy but being advised to hang off until they are sure of their finance.

The problem boils down to clients being currently unable to trust the lenders. If we could have a guaranteed offer of loan in principle from a lender before a buyer came to the market, sales would conclude much more quickly, and we would not have to wait for the current (non-guaranteed) offer of loan. We could then progress back towards the ideal of an early conclusion of missives which was always touted as a great advantage in Scotland over other jurisdictions.

However, unless we can persuade all of the lenders to move to some form of guaranteed mortgage offer (which I think the profession should still press for), we should consider some form of interim measure.

We are now moving towards more of a seller’s market with the gradual re-heating of the market. I recently had a situation in which a seller client of mine accepted an offer for a popular property which had a lot of interest, and which normally would have gone to a closing date, from a party offering a reasonable price, but also offering a speedy conclusion of missives as they were not in a seller’s chain or requiring a mortgage. The seller accepted the “lower” offer to achieve certainty. Whilst the successful offeror is no doubt happy, the seller is very possibly settling for a lower price than he could have achieved at a closing date. Also, all of the other offerors which are in the “normal” position of having either to secure a mortgage, sell a house, or both, will also be unhappy as they might have been prepared to offer more than the successful offeror but will not be given the chance. When you add the solicitor’s stress to the failure to secure the highest price for the seller and the buyer willing to pay the highest price failing to get the property, I think there is a problem.

Whatever the answer, I feel that solicitors should on this occasion take the lead and try to formulate a solution which helps more people across the board and would hopefully reduce the stress of juggling worried clients. I feel that the profession in Scotland has missed the opportunity in the past to improve their and their clients’ lot to all of our detriment, and I believe this would be an opportune time to improve matters.

Whilst I am not keen on a deposit system per se, I believe that such a process could address the problems mentioned. As a hypothesis, standard terms could include a requirement for, say, a 3% deposit on the basis that (a) it was paid within 7 days of conclusion, (b) if the purchaser had to withdraw due to a mortgage or a house sale failing, they would lose that deposit, and (c) if the purchaser had not purified the standard finance clause within say three weeks (or two weeks before settlement), the seller could decide to pull out and keep the deposit as a set penalty. This would allow for a reasonably quick conclusion of the bargain. It would limit the penalty that a potential purchaser would have to pay if they had to pull out due to mortgage or funding problems. It should be affordable in that most purchasers have to contribute a larger sum than this towards the purchase of their house, should compensate a seller adequately for any “false start” and would also give certainty as to the position.

I fully accept that this idea is not perfect, as a purchaser saving for years for the deposit could lose the majority of this if their offer of loan fell through. However, the chances of the lender actually failing to come up with the funds, if the purchaser has properly checked their finances before coming to the market, should be small.

I understand that deposits for domestic properties are standard practice in some other countries, and that it works well. Until we can persuade the lenders to provide a “lending guarantee” prior to a purchaser coming to the market, I believe that (despite conveyancers being naturally conservative, in habit) the profession in Scotland should seriously consider a standard deposit scheme not only being added to the standard missive clauses, but accepted by solicitors in most circumstances.