A ‘broken housing market’ according to Sajid Javid: How can we eliminate the scourge of gazumping and gazundering?

 

A ‘broken housing market’ according to Sajid Javid: How can we eliminate the scourge of gazumping and gazundering?

It appears that Prime Minister May and The Secretary of State for Communities and Local Government, Sajid Javid, are clearly ‘on the march’ in trying to fix the ‘broken’ housing market. They want to build 300,000 homes per annum (the same number built in the 80s under Margaret Thatcher), expand Right-to-Rent and Right-to-Buy and of course, get rid of both gazumping and gazundering.

If they succeed they will have done well, since for time immemorial, gazumping and gazundering has been the scourge of the Property Market. It is costly and very irritating to buyer and seller alike.  So what is the answer?

Where the problem lies

The problem lies in the protracted time taken between agreement of terms, the obtaining of a mortgage offer and a structural survey which leads to the consolidation, by way of an exchange of binding contracts, where a non-refundable deposit is paid.

Both the USA and Scotland claim to have the perfect solution whereby, supposedly, you can exchange an immediate contract for purchase, pay a deposit, and this is designed to deny the opportunity of either buyer or seller reneging from the agreement. This system looks ideal save for the fact, that the ‘devil is in the detail’ i.e. they are subject to mortgage finance and structural survey and therein lies the difficulty.

As a seasoned veteran in the UK Residential Property Market for the last 41 years I know all the ‘tricks of the trade’. I can tell you that even with these ‘quickie’ exchanges a canny purchaser can ‘wriggle out’ of these agreements if they want to.  By way of illustration, all the purchaser needs to do is to is to deliberately frustrate their own ability to obtain a mortgage or, overstate the surveyors concerns about the structure or services of a property and ‘Bob’s your uncle’ you have ‘wriggle’ room to renege.  This is a little ‘lop sided’ since it is more difficult for the seller to ‘get out’ of the contract than the buyer, which you could say, seems inequitable.

No Perfect Solution

There is no perfect solution here but a ‘half way house’ version could be that the buyer and sellers solicitors agree to exchange an immediate ‘lock out’ agreement which gives the buyer time to organise their survey and obtain mortgage finance whilst the terms are fixed under this agreement. This, technically, could be signed within hours or days of an agreement in principal and is designed to prevent the parties being able to renege from the agreement.  Unless a non-returnable deposit is lodged by the purchaser, they could still prevaricate, if they found a cheaper property elsewhere and would undermine the agreement if they wanted, so ‘nothing is perfect’.

Gazumping is a ‘Bull Market’ phenomenon, whereas gazundering is a ‘Bear Market’ equivalent. By their very nature they are unilateral processes i.e. one decided by one party not two, whereas, an agreement is a bilateral process which involves both parties.

In my travels I have known a seller who had previously ‘given his word’ to sell a property to a buyer and then ‘bought his word back’ for a sum of money (with the purchaser’s agreement) in order to sell to another buyer at a better price.  All three parties were delighted with the result and this is what we call ‘ethical gazumping’ which is far more morally fragrant.

In the absence of this simple measure, I’m afraid that in Bull Markets gazumping will be rife and in Bear Markets so will gazundering. So life goes on!

Do you remember those ridiculous Home Information Packs (HIPs) that the Labour Party
tried to introduce under the Housing Act 2004, which supposedly was done to reduce
gazumping and gazundering?

There were claims at the time that the packs contributed to the 2008/9 housing crisis by
deterring vendors from marketing their homes due to the extra costs in the survey.

Originally, HIP’s were to become mandatory on June 1, 2007 and then, two weeks before
the deadline, they were spectacularly scaled down to what is now just an EPC (Energy
Performance Certificate) that is another piece of useless bureaucratic, pointless, hurdle that nobody ever wants or takes any notice of.

The gargantuan ineptitude of governmental interference in the workings of the markets is
legendary and this is a perfect example.

Organisation needed for the building of 300,000 homes

As for building 300,000 new homes, this will take a lot of organisation, money and the will to break the ‘strangle hold’ of the Green Belt, which the ecologists ‘cling on to, for dear life’. It is ridiculous when you think that only 6.8% of the UK’s land area is classified as urban, which by simple mathematics means that almost 93% is not.

They need to take a ‘sledge hammer’ to the byzantine planning process through local councils, which is rife with petty politics and Nimbyism quite apart from the suffocating affects of the environmentalists, and goodness knows, there are enough of them. The Department of Environment, under Michael Gove, needs to absorb all but the trivial planning matters (not just the appeals), in order for properly trained planning inspectors to adjudicate on planning issues alone without being distracted by politics.

Permitted Development Rights, which enables office buildings to be converted into residential, was an act of total genius and we need more ‘quick fixes’ like this to ‘shake up’ the system.