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Mr. Foster: There is indeed a similar, but different, system operating in Scotland. I am sure that the hon. Gentleman, who is diligent in his research, will be aware that there are also similar schemes in other parts of the world, notably in a number of American states. Like his hon. Friend the Member for Hertford and Stortford, whose research contributed greatly to the development of this Bill, we have looked at some of the defects of other systems, including those used in Scotland and America. The key issue is addressed in new clause 3, that is, the reasons why people are able legitimately to say that they are not at fault in the sale having been frustrated. It is important that new clause 3—or any Government substitute for new clause 3 that might be tabled—makes clear the reasons why it could be perfectly right and understandable for the deposits not to be paid back. That has been our aim. I repeat that the new clauses are to a large extent based on the work of the hon. Member for Hertford and Stortford, whose name appears above all three new clauses. Mr. Loughton: I have a few comments to make on behalf of the official Opposition. We accord with the sentiments expressed by the hon. Member for Bath (Mr. Foster) and the same applies to some of the aims that he is trying to achieve. That is why my hon. Friend the Member for Hertford and Stortford put so much work into the subject. However, we have a problem with the way in which the new clauses are fashioned. I will deal with them one by one. On the issue of paying over a sum of not less than £2,000, as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) has already said, we cannot see why the hon. Gentleman is not in favour of going the whole hog as has been done in Scotland, where the deal amounts to an exchange of contract, rather than being subject to contract, as transactions in this country are. We seem to have got a fudged halfway house. I think that is a very sensible idea to require a pre-contract guarantee note, or similar, from a mortgage lender, but I do not think that it is sensible to make it another legal requirement and to criminalise those who do not obtain it. It seems to be taking a sledgehammer to crack a nut. What if a mortgage company were dilatory about producing the pre-contract guarantee note and the house sale was lost as a result? That can easily happen in a property boom, when there may be several people interested in the same property. Therefore, through no fault of the potential purchaser, a property could be lost because a particular mortgage company took several days longer than it should have to ascertain the potential purchaser's financial situation and produce the required documents. Mr. Foster: I am following the hon. Gentleman's argument with considerable interest. However, let us take the new clauses in conjunction with part I and the introduction of the seller's pack. From the point at which the marketing of the property begins, the seller's pack will be available. Does he agree that it will contain information upon which the lender can base a judgment, which will significantly speed up the process? Mr. Loughton: Yes, but the seller's pack does not contain anything do to with mortgage guarantees by the purchaser. In the race that might occur between potential purchasers and interested parties—they would be on a level playing field if they were all prepared to accept the home condition report and other elements of the seller's pack, although many of them may not—the interests of a potential purchaser who happened to have a slower mortgage company than the others or whose financial situation might be a little more complicated, requiring financial guarantees and so on, would effectively be prejudiced. He would be threatened with a criminal conviction if he went ahead without a mortgage guarantee.
10 amThis is a big market, with 1.5 million property transactions, the majority of which involve mortgages. When the property market is particularly hot, mortgage companies may take longer and longer. A form of mortgage guarantee is already happening on a voluntary basis. Some mortgage lenders, which are extremely competitive and exist in many forms, are producing their own ideas and pilot schemes—fully-fledged schemes in some cases—which effectively give a potential purchaser a guarantee that, on the basis of financial information displayed, a certain sum of money will be advanced. That can be shown as evidence to a vendor that the potential purchaser has the cash to back up any offer that may be made. I believe that instances of such behaviour will increase. As is the case with much of what is being imposed in the seller's pack, that is already happening in the market, without the additional cost in most cases and certainly without the threat of criminal conviction. Therefore, we cannot accept that a mortgage guarantee note should be compulsory or that the absence of such a note should result in a criminal conviction. That is our problem with the second of the new clauses. The third new clause would act as a heck of a deterrent for anyone venturing into the house buying market. The hon. Member for Bath is proposing that the deposit of not less than £2,000 should be forfeited and that someone involved in a frustrated sale should be liable for all the costs incurred by the vendor, which could be a considerable amount of money. If a sale has fallen through and the vendor is angry because his purchase of another house depends on that sale, he is unlikely to say, ``That's all right, these things happen and we won't impose any conditions.'' If he sees an opportunity, he is likely to press for every cost he can, from solicitors' costs to the cost of the inconvenience involved in showing people around the property and so on. It is a lawyers' charter, and we could be opening the floodgates to go the way of the United States, where the problems of home buying have completely clogged up the courts in the state of Massachusetts. The process of buying houses could become even more litigious than it is now. Subsection (3) to new clause 3 talks about ``reasonable grounds''. The definition of ``reasonable grounds'' is another lawyers' charter. We had a short debate about the definition of ``reasonableness'' in an earlier sitting. The new clause states that the costs will not be incurred if there are ``reasonable grounds'' for the failure of a sale. The ``reasonable grounds could include
The legislation is fraught with problems that we can do without in what is already a very nanny-type Bill. I suppose that we should not be surprised that the Liberal Democrats are joining in the nanny state chorus that we hear so often from the Government, of which parts of this Bill are another example. Although we support the problems highlighted by the hon. Member for Bath and identify with some of the solutions that he wants to apply, we think that he is going about it in the wrong way. He is taking a sledgehammer to crack a nut, and, as I have said, many of the issues are already being addressed by the market. The whole process of buying and selling houses is being improved, although not perhaps as quickly as we would like. However, within the confines of the cheapest house-selling market in Europe, improvements are being made at a satisfactory pace. Mr. Clifton-Brown: Mr. Stevenson, it is good to welcome you back to the Chair.This is an important subject that has not yet really been covered by the Committee because it has not so far come within the scope of the Bill. Should the current English system of privity of contract be amended in any way? I agree with my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) that the halfway house, proposed in all sincerity by the hon. Member for Bath, is the worst of all worlds. Basically, when one proceeds with a transaction, one wants it to continue. There is no point in forcing a purchaser into a situation that they would subsequently regret. Therefore, if one wants to move away from the current English system of privity of contract, one should go the whole hog and move towards the Scottish system. It would have been helpful if the hon. Member for Bath had described the Scottish system. In that way, we could have assessed the two systems and seen which was preferable. I will describe the Scottish system and then say what I think is wrong with the new clauses. In the Scottish system, all pre-contract inquiries are completed and the documents prepared so that when a vendor accepts an offer, it becomes immediately binding. Any deposit paid cannot be forfeited back to the purchaser. Furthermore, if the purchaser does not complete the transaction, he can be sued for any subsequent losses incurred by the seller. That seems to be a much better system, as it concentrates the mind of the purchaser. He will not make an offer unless he is absolutely certain that he has all the documents, guarantees and warranties that he requires. Only then will he enter into a binding offer because he knows that he will lose his money if he withdraws. The problem with the hon. Member for Bath's solution, is that it is a halfway house. If a purchaser rescinds from the contract, he forfeits a small amount of money—£2,000—and is possibly subject to a fine on summary conviction of £700. Under the Scottish system, he would forfeit his entire deposit. For example, if he were buying a £100,000 house, he would forfeit his £10,000 deposit. That is a much greater deterrent. It also provides certainty in the system because the moment that offer becomes binding, the transaction has effectively gone through. I am sure that the Minister must have thought about the Scottish system carefully. It has a number of merits. In view of the extensive consultation and the Bristol trial, I am not sure why the Minister has not considered adopting it. He did not explain that on Second Reading. It overcomes one of the chief objections to this part of the Bill—the problem with gazumping and gazundering—because as soon as an offer becomes binding, there is no chance of a greedy vendor accepting a higher offer. The only way of getting out of a binding offer is if the information could not have been known when the offer was made. That is not normally something like a structural survey because it is up to the purchaser to make all the inquiries that he reasonably needs to carry out a structural survey and he should rely on the basis of that structural survey. Only fairly obscure matters like a defect in title, which could not possibly have been known about at the time of the offer, would enable a purchaser to resile from a binding offer. As the Committee knows, I do not like the idea of criminal sanctions entering into what is essentially a civil matter. The Scottish system avoids that. Criminal sanctions should be used extremely sparingly because of their knock-on effects. It is not only the fine and the possible prison sentence at the time, but the problems that a person can encounter for the rest of his life such as in getting credit and a whole range of other issues that occur once he gets a criminal record. I abhor the criminal sanctions that are already in the Bill, but I do not think that the method suggested by the hon. Member for Bath for imposing further criminal sanctions in these new clauses adds anything or helps the situation. I hope that the Minister can explain why the Government, who presumably considered the Scottish system, rejected it and decided to retain the present system of privity of contract under the English system.
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| ©Parliamentary copyright 2001 | Prepared 25 January 2001 |
