Up to 40% of house sales fall through as buyers walk away

Published on Monday 27 October 2008 21:22

THOUSANDS of prospective buyers are pulling out of property deals due to fragile confidence among customers, it has emerged.

Cancellations on new-home reservations have soared in the past few weeks, with housebuilder Charles Church seeing pull-out rates rise to 35 per cent.

And yesterday the company's owner, Persimmon, revealed that cancellation figures had risen as high as 40 per cent last month on new houses.

A Persimmon spokeswoman said: "People pull out of a deal for a variety of reasons. It normally happens when customers' personal situations change.

"This has been particularly true recently with people finding it harder and harder to get mortgages. It isn't surprising that cancellation rates are at these levels."

Housebuilder Redrow had also seen figures rise. A spokesman said: "Cancellation rates in the new financial year have been approximately 26 per cent, continuing to reflect both the weak confidence of homebuyers and the continuing selectivity of mortgage lenders."

Business analysts blamed a crisis of confidence as the reason prospective buyers, particularly younger couples, were walking away.

John Postlethwaite, a consultant at Punter Southall Financial Management, said: "Currently, there is a lack of confidence within the market and it is definitely leading to people pulling out of deals which they may not have done in the past."

David Marshall, business analyst at the Edinburgh Solicitors Property Centre said: "There are around 50 per cent more properties on the market than this time last year, with sales also down a half on last year. Last year, sellers could choose who they sold their properties to. Now, the ball is in the customers' court."

Cancellation rates refer to customers pulling out of deals before contracts are exchanged. The reservation fee is usually between 250 and 1,000 and depends largely on the location and value of the property.

But the cancellations are not just happening on new houses. Jamie Macnab, director of Savills, said: "We have had way more fall-throughs at missive stage this year than ever before.

"One in five customers is pulling out and that is even at the very top end of the market. Buyers are losing confidence in the market and deciding not to go ahead. A few years ago, it was very, very rare for someone to pull out and it is now more commonplace at the top and bottom ends of the markets."

Jonathan Fair, the chief executive of Homes for Scotland, said: "Unfortunately, the homebuilding industry is seeing an increase in cancellation rates across the board. This is just one of the knock-on effects of the credit crunch and is primarily a consequence of buyers being unable to sell their existing properties.

"Following the government's banking bail-out, we need to see lending levels rapidly reinstated in order to generate some momentum back into the housing market."

Steve Turner, a spokesman for the Home Builders Federation, said:

"The fact of the matter is that housebuilders are obviously not going to build houses that people cannot afford to buy, and are having to scale their business to suit demand. The nature of the industry is being affected.

"Mortgage availability and liquidity is the key issue. We need to see banks start to lend again so other people can get mortgages. That will reinstate confidence."