COVID - 19: Housing Market Pause - Impact on Receivers

Covid 19

The residential property market in England and Wales is suffering as a result of the Covid-19 pandemic with conveyancing transactions grinding to a halt. The resulting issues, some of which we explore below, mean receivers need to be alive to the new constraints on each stage of the conveyancing process.

Marketing and Viewings

On 23 March 2020 the Ministry of Housing advised the shut-down of estate agencies (as non-essential services) with the immediate result being suspension of in-person viewings, surveys and inspections.

As a result receivers may be prevented from, or hindered in the process of, actively exercising their right to proceed with an immediate sale of the mortgaged property.

Virtual viewings of properties are an answer but marketing new properties where photographs, videos and measurements may not be readily available may be problematic. Receivers may be able to capitalise on the benefit of virtual marketing with a captive audience of prospective buyers who do not have any alternative means of viewing properties. This may make it easier to satisfy the requirement to advertise the property to an appropriate pool of prospective purchasers.

Conveyancing Process

Usually failure (by a buyer) to complete on the agreed date would allow the seller to retain the deposit and demand compensation for late completion. Government and Law Society guidance is to seek an amendment to the contract (whether before or after exchange) to defer the completion date, as follows:

• For contracts that have exchanged and are due to complete, the buyer
  may find that they cannot perform the contract i.e. complete on the
  completion date because of lockdown, self-isolation or unavailability
  of removal companies. Parties should discuss a deferral to the
  completion date, by contract amendment; includes service charge and
  other payments due under leases.

• For contracts not yet exchanged but close to exchange, consider the
  insertion of an additional covid-19 delay clause to avoid a default
  scenario.

Receivers have the right to determine the timing of the sale of a property and therefore may take the decision to wait and bring the property to market at a later date.

Receivers may consider waiting for lockdown to lift and suggesting a fast-tracked sale with simultaneous exchange and completion to further minimise the risks that arise in a split exchange/completion scenario.

The Signing

Issues may arise if sellers and buyers are unable to attend at solicitors’ offices to sign documents or do not have a witness present to countersign (due to social distancing measures). The Land Registry will not register transfers (or other registrable dispositions) unless the documents have a wet ink signature – electronic signing processes and software cannot be used in substitution.

If joint receivers are appointed and the appointment does not make clear that they are able to act severally then all receivers will need to sign the relevant transfer deed (to avoid challenge) and in order that HM Land Registry accepts the transfer as validly executed.

Achieving Best Price

Receivers owe an equitable duty to achieve the best price reasonably obtainable for the property to the borrower and those interested in the equity of redemption. The impact that Covid-19 is having on property prices is not clear however there is speculation in the market that house prices may fall by up to 10% by the end of 2020.

Valuation

Buyers and their lenders will find it difficult to obtain valuation evidence to support purchase prices. RICS have sought to mitigate this by saying they will accept external inspections and reliance on documents instead of follow this approach. reflect the restrictions that material uncertainty brings. These decisions are on a case by case basis.

Receivers will also need to obtain valuation evidence, which may be more difficult to procure in current conditions and which may be restricted by the inclusion of material valuation uncertainty declarations. If challenged a court will look to the price that should have been obtained - which may differ from the valuation.

Receivers should take into account that values may fluctuate during any period during which a completion date has been deferred and any other delay period arising from Covid-19 events.

Buyer-side Financing

Certain banks (such as Virgin Money and Skipton Building Society) are suspending mortgage applications with some lenders seeking to withdraw mortgages (Barclays has withdrawn LTV mortgages of more than 60% for buyers and landlords). Other lenders have agreed to extend current mortgage offers by three months to give some breathing space to buyers in transactions that are subject to delay.

The lack of available valuers in the market means that mortgage applications cannot advance beyond the valuation stage causing further delay. There has also been a resultant fall in the trading price of securities backed by prime UK home loans although commentators have been quick to clarify that this is not a market crash merely a pause or a freeze.

Keep up to date

We are likely to see further professional and industry-led guidance emerging so please ensure you check for updates. Please do ask us if you would like further guidance as to how the above may apply in your particular circumstances.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.