While we are assisting our clients to proceed as normal with their moves, we are aware of their concerns about moving in such an unpredictable environment. Below, we have outlined what effects coronavirus is currently having at each stage of the transaction and what may happen in the longer term.
Housing demand and lending
Since the Prime Minister has ordered everyone to remain in their homes (save for essential travel for work, food and daily exercise), the housing market has been impacted as Estate Agents have been forced to close and viewings have stopped. Agents are finding ways around the challenges, such as ‘virtual viewings’ uploaded by Sellers and virtual tours – so that Buyers can still see the property internally and get a feel for its layout and size. In addition, properties can still be marketed online.
The coronavirus has caused difficulties with obtaining mortgages. Due to the Bank of England reducing the Base Rate, demand had increased and lenders had been narrowing their mortgage products. As a consequence of COVID-19 and the uncertainty it brings, some lenders have taken the decision to temporarily cease offering new mortgages. For some lenders this has been limited to buy-to-let products or products for the self-employed, but others have ceased altogether for now. Even those lenders who will consider new applications, processing times are likely to be longer due to staff-shortages and the limited ability to undertake valuations. This, together with financial and employment uncertainty, may mean that the economy will delay the housing market from returning to normal for longer. Only time will tell.
Prior to exchange of contracts
Despite news outlets reporting that Buyers and Sellers have been told to halt the process; the reality is very different. The Guidance specifically states that “there is no need to pull out of transactions”, but parties must comply with specific measures and prioritise the health of individuals and the public. Due consideration must be given to the risks and consequences we face in light of COVID-19.
The full guidance can be found at: https://www.gov.uk/guidance/government-advice-on-home-moving-during-the-coronavirus-covid-19-outbreak
As conveyancers, we are endeavouring to keep the process moving where possible in order to ready clients for the next stage of the transaction (such as exchange of contracts or completions) when the lockdown comes to an end.
Some Local Authorities and utility companies have stopped providing searches whilst surveyors have been informed that they are only allowed to continue their work provided no one involved has the virus and they maintain social distancing and hygiene measures. The industry is therefore currently conflicted; but where possible – parts of the transaction can still progress.
The average transaction takes 6 to 8 weeks in the UK so this period of lockdown can facilitate the legal processes and where possible, surveys, to enable parties to move swiftly once the COVID-19 restrictions have been released.
Some clients have made the difficult decision to pause their transaction until the economy is more stable and movement is resumed. This is often due to the uncertainty of the economy and their health concerns.
After exchange of contracts
Many people have already ‘exchanged contracts’ on transactions which were agreed before the virus took hold. Those individuals are therefore contractually bound to complete on a specified date. Failure to do so will result in a breach of contract and penalties.
Breaching a contract would result in the defaulting party paying compensation to the other party and potentially, a claim for damages as a result of the late completion. The amount of damages that can be claimed is unlimited and could cover claims for damages from all parties in the chain.
Purchasers or indeed, sellers, who are in this position therefore face a difficult decision as to whether to try to agree a delay in completion or press on for completion. In order to defer or vary the completion date, all parties in the chain have to agree, or be able/willing to break the chain. The Government would like parties to agree to defer wherever possible. However, no one knows how long these measures and the effects of COVID-19 will go on for, so when would be a ‘safe’ date to agree to complete? Each case is different and as such, there is no steadfast solution that applies to every transaction. There are other influencing factors such as mortgage offer expiry dates and search expiry dates. Buyers also have to be aware that if their personal circumstances were to change after exchange, it might affect their ability to obtain their mortgage (even if they have a valid mortgage offer pre-exchange). UK Finance have agreed to work on finding workable solutions (e.g. extending the life of mortgage offers), but as yet, there are no details.
Whether parties consider deferring completion may also depend on whether the removal companies continue to work. The government has clarified that removers should honour their existing commitments provided the move can be done safely and removers can continue their work while adhering to the current health guidelines. If removals companies are unable to assist, the parties would have to self-move. Removal companies do not all agree about the interpretation of current guidelines.
As with every aspect of our lives at the moment, the key message is that we should follow government advice and stay at home wherever possible. If contracts have not yet been exchanged, unless the property being purchased is empty, due consideration must be given to COVID-19 and the restrictions on movement. Where contracts have already been exchanged, this may not be possible. How clients and conveyancers deal with their transactions can only be considered on a case-by-case basis.
If it is not possible to complete a transaction, there is no need for clients to withdraw from the transaction. The legal work can be progressed during this time and so parties will be in a good position to exchange and complete when the restrictions are lifted.
The government and UK Finance are looking at ways to help the market, details will follow in due course but measures are likely to include extending mortgage offers and working with conveyancers to create a standard procedure for moving completion dates. Where contractual reasons require parties to move, they must ensure that they stay away from others to minimise the spread of the virus and anyone who is self-isolating must follow medical advice.
Many surveys showed an increase in UK house prices and an upturn in the housing market from late 2019 to early 2020. It is unsurprising that coronavirus is likely to undo any positive movements that have been made in the start of the year however we may, as a result, see a boost once COVID-19 has passed, albeit a slow improvement at first. Similarly, we are still hopeful that this is simply a temporary hit rather than one that will have lasting effects. For now, the impact on the market remains uncertain, as we are in such unprecedented times.