A fresh outlook is needed, says Michael Sheridan
A CLIENT told me recently of his great relief when his wife relented on her previous decision to re-locate the family home. The initial decision to move had been prompt by one of the typical changes in family circumstances that promote a change of residence. Nevertheless, the prospect of becoming involved in the current property market proved more daunting than even the stout-hearted spouse was willing to face. The happy relief of my would-be client was on a par with my own despondency at the loss of turnover in the region of £750,000. I pondered the factors that had brought this about and wondered whether such factors might have some connection with the ongoing flatness in the property market.
The chief villain in my client’s opinion was the lack of access to bridging finance. When I set up my own legal practice in the dim and distant past, I had a convivial meeting with the manager of what was then a Scottish bank. Although I was a stripling youth barely out of my 20s, I was handed a ‘special’ chequebook. If a client of mine required the short-term loan of a sum equivalent to a house purchase price, then I should simply write a cheque as required. This would enable my client to finance the purchase transaction, independently of the sale transaction, and repay the short term loan out of the proceeds of sale at a later date.
No security was taken, nor was any special survey required by the bank. The basis of the arrangement was the trust placed by the bank in the badge of a Scottish solicitor. Then came the 1980s. An application form had to be completed and this form became incrementally longer and more complicated. Then, in similar fashion, an initial, minimal arrangement fee gradually increased to eye-watering proportions. Eventually, the bridging facility disappeared altogether, along, as it happens, with the Scottish banks. Whatever may be the upside of the reform of financial services, the downside has included the loss of this very valuable facility.
Perhaps there are other factors. In that dim and distant past, the non-profit making building society mortgage was a very predicable quantity. If I knew my client’s income and outgoings and held a satisfactory survey, I was able to calculate my client’s loan potential and to advise him to commit himself to a purchase contract accordingly. This was weeks and even months before the transaction was due to take place. This enabled the seller of the property to progress his own purchase accordingly. With contracts in place, the parties knew where they stood. Professional engagement with the modern, profit-seeking, bank mortgage market has persuaded many solicitors to advise clients to steer clear of contract until the mortgage papers have been signed, issued, and studied closely. Until that time, neither party has any legal commitment and either party can walk away from the transaction and the parties do not know where they stand in the meantime. The seller has no contract on which to base his own new purchase. In some cases, he misses out on that purchase and then withdraws his property from the current, abortive sale transaction. In many cases, the parties suffer the misery of uncertainty and fear of financial damage.
Perhaps one of the worst consequences of the absence of bridging facilities and early contractual certainty is the nightmare of same day settlements. In these, the sale proceeds are used on the day of receipt to fund the purchase transaction, on that same day. Funds are either transferred electronically and therefore subject to the vagaries of the banking system or by cheques which require to be restricted by encashment conditions. An extra level of stress arises from the fact that a hitch in either transaction can bring down both transactions or, at least, compel a sudden search for hotel accommodation and furniture storage. I hasten to add same day settlements usually work but it is often a white knuckle ride and occasionally calamitously unsuccessful.
We cannot and would not wish to turn back the clock but we should perhaps monitor future progress with a view to prioritising greater financial flexibility, reliance upon contract and escape from same day settlements.
• Michael Sheridan is Secretary of the Scottish Law Agents Society www.scottishlawagents.org