Santander issues brutal verdict on UK's 'antiquated' home-buying rules

The home-buying process is "antiquated" and sales that fall through are costing the economy at least £1.5 billion per year, according to a report for a major bank.

More than half a million failed transactions a year across England and Wales are costing consumers about £560 million directly and a £950 million hit to the wider economy, the calculations commissioned by Santander UK indicate.

Its "fixing the broken chain" housing report indicated that nearly a quarter (23%) of people said they had tried to buy a property, only for that process to fall through.

The report said: "For most people, buying a house is their biggest financial commitment.

"The process as it stands simply does not reflect that. In an era that is marked by digitisation and ease for so many areas of day-to-day life, the property market sticks out like a sore thumb."

In the report, David Morris, head of homes at Santander UK, said: "Our conservative calculation shows that £1.5bn a year is lost in the economy and by consumers from failed property transactions."

The research was based on economic analysis from WPI Economics, as well as a survey of more than 2,300 consumers by JL Partners carried out in July.

It estimated that about 530,000 housing transactions fail each year in England and Wales.

The economic analysis indicated that the direct cost to consumers of this through spending that cannot be clawed back, such as mortgage and solicitors' fees, is £560 million annually.

The vast majority (85%) of people who experienced a failed transaction reported a financial loss, researchers found. The average cost was £1,240 per failed recent transaction.

The research indicated that 17% of unsuccessful transactions collapsed after one month, while 43% of failed transactions happen at or beyond the three-month mark.

Researchers also highlighted affects on the broader economy of failed transactions, such as the time out of the workplace that people have taken while trying to complete transactions, and the cost of reduced wellbeing and leisure time that had been wasted.

A typical buyer who reported wasting time estimated they spent 100 hours engaging in activities related to a failed transaction, the report found.

The majority (nearly 60%) of those activities were taken during regular work hours, which was time that could have otherwise been spent being economically productive, it added.

Some people said the buying experience would make them less likely to move again.

The impact of people living in housing which is no longer suitable for their needs includes such things as reducing workforce mobility, fewer larger homes for growing families and slowing housing chains, the report said.

To help prevent sales falling through, Santander wants to see gazumping, where a seller accepts another higher offer on their home after previously verbally agreeing a deal, and gazundering, where a buyer reduces their offer at the last minute, disincentivised.

The bank also wants to see better up-front collation of information from those involved in transactions.

The report said: "At the front end of the process in Australia, offers are often legally binding as contracts are signed very shortly after the seller has accepted, giving additional security and protection from gazumping.

"Scotland, Spain and the United States also provide some form of certainty.

"In the Scottish system, offers are legally binding. This is made possible by enhanced disclosure up-front."

Santander is also calling for a centralised property data system, and greater use of AI (artificial intelligence).

The report said: "Increasing the use of AI within the transaction process would create a more seamless journey for all.

"Automating administration tasks removes the burden from conveyancers and lenders, freeing up time to spend on the elements of transactions that require their expertise and provide the most value for customers."

Mr Morris said: "Buying a home should be a moment of excitement and hope, but for too many people it's an uncertain and exhausting process, that drains their mental, emotional and physical health.

"The home-buying journey is still operating in the confines of a framework that was established a century ago.

"This antiquated system is an increasingly heavy anchor weighing on the economy and fixing it must be key.

"While the Government has put the housing market firmly on its agenda, as this research shows, the scale of the challenge remains largely underappreciated, and that's why we're calling for powerful reforms to give buyers and sellers more confidence, ease the financial and emotional strain and create a housing system fit for the needs of today's consumers and economy."