Saturday, June 17, 2006

We must reform the housing market

Why can't Labour do anything right? I know it sounds horrendously naive to say something like but sometimes I find it really difficult to accept that there is a total lack of common sense in the Government. Take the housing market for example. It's always been a complete nightmare buying a home in England, and god forbid you’re selling and buying in a chain, it's positively horrible, especially if you suffer gazzumping or gazzundering.

The Government wanted to make it easier for first time buyers and so thought a really good way to help people out would be to put the obligation to get a survey and searches done on the vendor. In the past, when you bought a house, you agreed a price through an agent with the vendor and then you sent your surveyor round (at a cost to you) to check that the place wasn't falling apart. The Government's idea is to reverse that and make the vendor pay for a "seller's pack" which it then provides to the buyer. The pack contains all the information the buyers needs, like searches and a survey.

This might sound great in principle, but in practice it's actually nonsense. Firstly, the seller's pack is only valid for six months. If you get it done and then fail to find a buyer for your house you lose the cost - estimated to be about £1000. The Government argues that this stops vendors putting their house up for sale to "test the market", but if you're a normal average person you'll be able to figure out what the rough price your house is worth by looking in an agents window locally.

The second practical problem with the pack comes straight down to an issue of trust. If you're a first time buyer, about to make the biggest single investment of your life, are you really likely to trust the person selling to you to be totally honest? More to the point, is your mortgage lender going to? The simple answer is no. Buyers are likely to want their own survey carried out under their own instructions, and the mortgage lender will definitely want it. They don't want to be lumbered with a property that can't pay off it's own debt.

The Sellers Pack is, to be frank, a very expensive bundle of paper. It actually discourages vendors to put their house on the market whilst ironically being created to encourage and help first-time buyers. Joined-up Government at its best!

This leads me nicely on to what I think the Conservative Party should do to genuinely reform the housing market. I'll be perfectly honest; I'm not in the least bit original, because all I’m doing is looking at Scotland. Yes, as much as it pains me to admit it, they've got it right. The time it takes from the decision to sell to completion rarely takes more than six weeks in Scotland. They implement a closed bidding system whereby the vendor puts the house on the market with "From £xxx,xxx". People then submit bids to the vendor before a closing date and the highest bidder wins. There is no gazumping or gazzundering, it’s just straight, clean sales.

Rather than tinkering on the edges with gimmiky "Seller's Pack" we should be adivcating root and bracnh reform to the entire process of buying and selling homes. In my view Scotland's system hold the key.

6 comments:

LondonVillage said...
17 Jun 2006 23:45:00  

A few views on the “Sellers Pack” from a trained eye:
Firstly I’ve got to give it to Labour for coming up with a whole new approach to sorting out the current housing market and its associated problems, rather than tackle the underlying problems its instead decided that they way to resolve the problem is to add a new layer of bureaucracy in the hope that it will clam things down. It just isn’t going to work.
Firstly some of the problems with the sellers’ pack are:
1. For £1000 most of that is being swallowed up by lawyers fees (as a surveyor I don’t know what they do for it, they get paid by the hour, we typically get paid by the value of the property.) it leaves little money to cover the basic cost of a proper valuation, which is perhaps the only thing of any use in this pack, the trouble is that a fully qualified surveyor just isn’t going to want to do these sellers packs as it would barley cover the professional indemnity cost for the insurance. To fix this problem Labour have decided that other sorts of valuation services are going to be allowed to work on the sellers packs. So this is a law suit waiting to happen.
2. The sellers’ packs don’t contain enough information. Again a law suit waiting to happen, title deeds check and rough valuation, that’s not enough, so people are going to have to (if their sensible with the largest investment of their lives, a lot aren’t) get a proper valuation, so more money being spent, not good for the first time buyer.

If Labour really wanted to help sort out the housing market it could work on a couple of things, but these are just the tip of the ice berg:
1. Sort out the land supply, in the UK it takes around a year to get planning permission for a big site, I’m all for protecting the green space in the country, but at present only 11-13% of the country is developed, if we pushed that up to 14% we could all have the decent homes that we want, we currently have the smallest homes in Europe.
2. Build more of the homes that people want: The ODPM (under 2 jags) has set various targets and quotas for the number of new houses to be built; this has resulted in largely 2-bed apartments being built, not family homes (under the thinking that this is still a “home” and not a “box”). It is family homes that this country needs in the long term not 2-bed apartments, they are a lot more flexible to the changing demographic structure of this country and are also generally of better quality than the quick and cheap apartments. See Policy Exchange recent reports.

These are just a couple of views on the situation from little old me. Better stop now this is tuning into a post not just a comment.

dizzy said...
18 Jun 2006 07:42:00  

thanks for the comments, I'm just a consumer in the market place so it's good to see my views are at least shared by some people in the industry. What do you think of the Scottis method of house buying?

AJD said...
18 Jun 2006 09:52:00  

What a sensible list of suggestions, from both of you! There is but on flaw in the Scottish system - and that is solicitors can also be estate agents. They are charged selling the properties and representing a clients legal needs in the sale process. This can lead to some insider dealings, especially in small towns were there are only 2 or 3 estate agents/solicitors.

Another example of how this system has problems is what happened when I sold my flat. After I signed the contract with my estate agent, I found out that they were also legally representing the person I was selling to! There was a real conflict of interest, and they should not have accepted both of our business (or at the very least informed us before we signed!). In the end, it all worked out ok, but I was a little worried for a while.

Anonymous said...
18 Jun 2006 11:23:00  

Perhaps a study of the Spanish method. I sold a property in Spain, some years ago, in just five days. The purchaser viewed on the Sunday and we signed the escritura on the Thursday.

LondonVillage said...
18 Jun 2006 12:28:00  

There are problems with the Scottish method as AJD said. Personally I’m more into the absolute free market, and that’s what we have in the UK, things can change and the price can change instantly to take account of that. One of the real problems with the UK market is that we do not have one market place (such as the London Stock Exchange for shares) and so therefore it makes determining if your paying the right price harder.

Whilst I’m not suggesting it there is also the Australian method, the vast majority of their homes are sold though auction. But then this method has its fall backs too, namely that all the bidders have got to get their finances sorted out in principle before the auction, so lots of time and effort wasted if you don’t win. This does at least mean that the price is published and everyone is aware of what is going on. In the UK you don’t have to publish the sale price if you don’t want to.

Generally I’ve got to say that whilst the UK approach may not be perfect it is still working in the large part, if the real pressures of the housing market could be sorted out then the actual transactions would be a lot simpler.

That and perhaps the greatest reason for not reforming – Do you think Labour would do a good job at reforming it?

Croydonian said...
18 Jun 2006 19:07:00  

I think we would benefit from moving towards the US system in terms of property listing. Let us say I live in Utah and want to move to Alaska, I could visit one agent who would have access to all the properties for sale. If I find the property I want via the realtor who has the listing, that agent gets all the commission, and if the property is listed by another realtor, the two split the commission.


 

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