Homes Bill

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Mr. Raynsford: This has been a curious debate and, in the carefully chosen words of the right hon. Member for Skipton and Ripon (Mr. Curry) at an earlier sitting, it could be concluded that we are holding the debate at the wrong time. I shall not repeat his elegant phrase, but I was astonished to see that it made its way into Hansard.

Mr. David Curry (Skipton and Ripon): My phrase was not temporal, but spatial.

Mr. Raynsford: I was only commenting that I was astonished that it made its way into Hansard. I do not intend to repeat it. My point was that the debate should have come at the beginning of our proceedings on part I, because it is a debate about the ways to tackle the problems inherent in the current system of house buying and selling.

I agree with the hon. Member for Bath that there are problems. I agree with the hon. Member for East Worthing and Shoreham—[Hon. Members: ``Hooray.'']—whose constituency name I got in the right order today, that the new clause addresses real problems and that the proposals will not work and are unsatisfactory in a number of ways. However, I do not agree with him about our proposals in part I. I believe that they are an effective remedy to those problems, which makes the option that the hon. Member for Bath proposes unnecessary. I will also pick up on points made by the hon. Member for Cotswold about the merits and demerits of the Scottish system.

We all agree that a key problem in the current system is the lack of certainty. People find themselves in the process of buying and selling without being certain about the information that is necessary to reach an informed decision on how much to pay, the speed at which the transaction will proceed or whether the transaction will go ahead. The figures cited in the debate have highlighted the extent to which transactions fail in the existing system between an offer being made and contracts being exchanged. A high percentage of contracts fail under current arrangements. It is right to consider ways of trying to provide greater certainty for the transaction process and of avoiding problems of abortive costs that can all too easily arise.

10.15 am

Conditional contracts, which are the subject of new clause 1, set a completion date from which neither side can withdraw, except as allowed by the conditions. Such contracts are already available, on a voluntary basis, to anyone who wants to use them. Also available are agreements that provide for deposits to be paid and costs guaranteed in the event of the other side pulling out after terms have been agreed. The Royal Institution of Chartered Surveyors, the National Association of Estate Agents and others have had draft agreements on those lines available for some time. However, those agreements are rarely used because they all have potentially serious drawbacks, some of which were highlighted by the hon. Member for East Worthing and Shoreham.

It is true that some countries use conditional contracts. Our international comparison research confirmed that. However, that research noted a crucial difference between the home buying and selling culture of those countries and the culture in England and Wales. In countries where conditional contracts are common, buyers are more prepared to set a completion date and stick to it, even if it means completing before their existing home is sold. That has the obvious corollary that they must make alternative arrangements to accommodate themselves in the meantime. Sellers are more prepared to take temporary rented accommodation if they sell their existing home before their new home is bought. The culture here is entirely different. Buyers and sellers generally want to co-ordinate their transactions, and inevitably that means that the majority of transactions are caught up in chains.

Conditional contracts cannot work effectively in a chain where a completion date cannot be set at the outset. If the conditional contract allows flexibility over the completion date, the likely result is a detailed, over-complicated and ineffective agreement full of caveats to meet the various problems that might arise. If there is no flexibility over the completion date, buyers and sellers would no longer be able to co-ordinate their transactions. Buyers would be pushed towards expensive and risky bridging finance, and sellers would have to face the prospect of temporary rented accommodation that will not always be available. Buyers and sellers in England and Wales have made it clear that they do not want that, and it would be wrong, in our view, to force them into such arrangements.

We have also looked closely at the scope for introducing cost guarantees. We were attracted by that concept in opposition and we consulted on it in 1996. Initially, cost guarantees, with or without deposits, appeared to offer a potential solution to a situation where one party pulls out leaving the other side high and dry with a lot of wasted expense. However, on closer examination and on listening to the responses to our consultation, we acknowledged that there were practical drawbacks with cost guarantees. One issue is the apportionment of blame, where some or all of the transactions in a chain fail. Deciding where responsibility lies could create even more litigation than any other possible scenario. I must tell the hon. Member for Bath that new clause 3 is a minefield in that respect.

New clause 3 essentially says that the deposit is lost except where a purchaser has reasonable grounds for withdrawing from a contract. ``Reasonable grounds'' are then defined as

    the discovery of a structural or other defect—

a point referred to by the hon. Member for East Worthing and Shoreham—or the

    discovery of a development proposal or other factor having a direct effect on the value of the property which was not known to the purchaser at the time of the agreement.

The hon. Member for Bath responded by saying that it could work in conjunction with part I of the Bill. However, in reality, part I is designed to ensure that exactly that information is obtained upfront.

Mr. Don Foster rose—

Mr. Raynsford: I will give way in a moment. This is a complex point and I hope that the hon. Gentleman will bear with me while I explain it. Where there is no provision for a seller's pack and a home condition report in advance, the lack of those documents can be the very reason that buyers discover problems after they have made an offer, by carrying out searches or surveys themselves. That is the difficulty with any conditional contract: if an exemption is not allowed, such problems may arise, but if it is allowed, there is enormous scope for litigation.

Mr. Foster: I entirely agree with the Minister, who misunderstood what I said to the hon. Member for East Worthing and Shoreham; or perhaps I did not adequately explain what I meant. My point is that the seller's pack, by providing early information, would provide an opportunity to speed up the decision of a mortgage company regarding ability to pay. The Committee's numerous debates on the subject of the seller's pack have revealed that the information it contains cannot always be relied on in the long term. Some information, including, for example, information on local searches, can become out of date.

Mr. Raynsford: The Bristol pilot study showed that no transactions with a seller's pack failed because of problems being uncovered at a later stage. Currently, however, 43 per cent. of failed transactions are attributable to matters related to the structure or condition of the property that are discovered after an offer has been made. That is clear evidence of the advantages of a seller's pack. We accept that a seller's pack will not reveal everything in every circumstance; that is why I said that in certain cases the seller's pack will point to the need for a further structural survey. However, the pack will provide far more information than is currently available and overcome the problems that so often occur in the existing system.

Mr. Foster: I am surprised by the Minister's strength of feeling and the way he pushes the point, because he is merely repeating what I said rather more eloquently. We are in complete agreement.

Mr. Raynsford: I do not think so. The hon. Gentleman tabled a new clause that would open immense opportunity for litigation. Apart from the two grounds defined as reasonable, new clause 3(3) states:

    ``Reasonable grounds'' shall include but shall not be limited to—

those points. The proposal would provide enormous scope for litigation of exactly the kind that the hon. Members for East Worthing and Shoreham and for Cotswold identified. That is not a serious way forward.

Mr. Clifton-Brown: With great respect to the hon. Member for Bath, his amendment shows a misunderstanding of the property market. The two reasonable grounds that he identified are relatively obvious: a structural survey will fairly easily reveal a defect in a property and a local authority search will easily reveal a development in prospect. The more complicated legal matters, such as defects in title, rights of way and easements, are not so easy to discover and they can take time to determine. That is when the Scottish system allows people to withdraw. The grounds suggested by the hon. Gentleman are not the most valid ones.

Mr. Raynsford: I agree with the hon. Member for Cotswold; I was about to deal with the Scottish case because, as he rightly said, there is provision in the Scottish arrangements for withdrawal when certain matters, such as those that he mentioned, are involved, but they take quite a long time.

That brings me to the nub of the problem with the Scottish system: it works well within a relatively slow-moving market, in which people are prepared to undertake the up-front costs in advance of putting in a bid. There is probably a limited number of bidders and people can therefore take a calculated risk in expending money on a survey or other works in advance while knowing that it will be abortive if their bid is not accepted. However, in the fast-moving market in much of England and Wales, the risk is high. There are not many buyers in England and Wales who would be willing to incur expenditure on a survey and all the legal checks and searches necessary to give them confidence that they should put in a bid that will become unconditional if it is accepted, if there is the prospect of their bid failing because there are many other bidders in the market.

If there are many other people in the market, which is increasingly the case in parts of Scotland, including Edinburgh, there is a move away from the traditional Scottish system because of its inherent disadvantages. It is a question of horses for courses—a point made frequently during these debates. Although we accept that the Scottish system works reasonably well in the context of the Scottish market, we believe that it would not work well or find favour with the vast majority of buyers and sellers in the faster-moving market in England and Wales.

New clause 2 would require buyers to have proof of their ability to pay the purchase price before agreeing terms. It is very important that buyers are well prepared before embarking on home buying. They should consult mortgage lenders and secure an in-principle mortgage offer before they begin their property search—we think that that is good practice—and nearly all mortgage lenders provide that service. I noticed a recent press release from Legal & General which specifically highlighted the facilities available from that company. It said that obtaining agreements in principle

    will increase greatly and become standard market practice once the Homes Bill becomes law and is introduced in 2003.

We regard that as good practice because the assistance of mortgage lenders, estate agents and conveyancers will make it possible for early in-principle mortgage offers to become widely available.

If buyers know at the outset the size of the mortgage that they can afford, they will be far less likely to make spurious offers that they cannot live up to and sellers and estate agents will be able to save a lot of time that would otherwise be wasted. Equally, it will give teeth to the provisions we have already debated that allow an agent to decline to issue a seller's pack to someone who he does not believe is in a position to proceed with the transaction. People who cannot demonstrate that they have the ability to raise the necessary finance could cause an unreasonable delay.

There are all sorts of benefits from that approach, but it will need to be handled carefully. It might not be in the buyer's interest when making an offer to reveal to the seller or seller's agent how much he can afford to pay, as that could prejudice his position in negotiations and encourage the seller to press the buyer for a higher offer. That, too, lends weight to the argument for the flexibility provided by the voluntary approach, rather than for imposing the sort of burden of proof proposed in the new clause.

We agree with the criticisms of the hon. Members for East Worthing and Shoreham and for Cotswold about the new clauses being excessively rigid, even if the underlying intention is good. The best way to deal with change, to bring about earlier certainty and to reduce the risk of gazumping and other problems without putting legitimate activities at risk is the introduction of the seller's pack. I ask the hon. Gentleman to withdraw his new clauses.

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