More than one in three home purchases have fallen through in the last 12 months, with potential buyers typically ending up £2,000 out of pocket.
According to data from online property platform Smoove, 34 per cent of property transactions did not ultimately end up going ahead.
The problem may stem from a crowded housing market with lots of competition, as the research also revealed that new property searches from would-be buyers were up 36 per cent year on year.
The figure climbs to 54 per cent for first-time buyers, according to the firm's inaugural Home Movers Report.
The cost of moving home, which buyers may not be able to fully recoup if a sale collapses, have also increased due to rising house prices and living costs.
As demand from buyers continues to grow, solicitors are facing capacity constraints, according to the report. It found that the average legal fee has risen by 11 per cent or £140 in the past 12 months, from £1,273 to £1,413.
Homebuyer surveys have also risen in price, costing an average of £525, up 12.9 per cent from £465 the previous year.
Potential homeowners are therefore paying almost £2,000 in associated costs – money which could be wasted if the transaction then falls through.
Jesper With-Fogstrup, chief executive of Smoove, said: 'Home moving can often be an agonising, horribly stressful experience. The fact that few would argue with this speaks to a failed system.
'One in three home buying transactions should not be falling through. This figure represents tens of thousands of broken dreams and huge sums of money essentially poured down the drain.'
He said that the law needed to be reformed in order to prevent as many sales collapsing.
'Creating more certainty around property transactions is essential. It will probably require legislative reform to provide greater protection to buyers and sellers once offers have been accepted,' he added.
'However, in the meantime, there are many things the industry could do to reduce stress levels and the proportion of transactions falling through.
'As we've seen, the sheer length of time is a major driver of stress and uncertainty. The entire process requires significant digitisation and automation, expediting paperwork and alleviating pain points.
'People should be able to engage with the transaction process entirely online or via an app, providing digital IDs, signatures and form filling and see its progression in real time. This could really help modernise the industry and transform the home moving experience.'
Chris Sykes, technical director at Private Finance, said the mortgage company had also seen an uptick in deals falling through
He said it usually happens for one of two reasons. The first, he said, is concerns about the UK's general economic outlook leading would-be buyers to change their mind about moving and instead decide to stay put.
The second is a lack of housing stock meaning that one party in a property chain can't find a home to move to, causing the entire chain to fall apart.
'I have heard from many clients that all the good properties are gone,' he says.
The length of time transactions take to complete has also increased, rising 23 per cent to 153 days, more than five months, since 2019.
How to avoid losing money if a sale falls apart
A sale falling through isn't always avoidable, but there are steps that buyers may can take to protect themselves if it does happen.
Paula Higgins chief executive of the HomeOwners Alliance says: 'The reality is the longer it takes to buy or sell a property the more likely the transaction will collapse.
'People's circumstances change, which means they decide not to go through with the sale or purchase, or they may simply change their mind.
'And since people can pull out without any financial penalty up until when the contracts are exchanged, frustrated buyers and sellers will find themselves out of pocket.
'This is especially true for buyers who will have paid survey costs as well as mortgage arrangement and conveyancing fees.
'Buyers can take out insurance to cover these costs should the purchase fall through. The basic product offers coverage up to £1500, with a premium offering that will pay out up to £2500 including accommodation and storage fees.'
Higgins also advises instructing a solicitor or conveyancer before making an offer on a house, which will speed up the process once you do put an offer down and limit the amount of time in which another party can change their mind.
The 34 per cent of transactions that are collapsing represents a 4 per cent uptick compared to pre-pandemic.
Nathan Emerson, CEO of Propertymark said: 'On average, pre pandemic, around 30 per cent of property sales fell through.
'The current lack of stock will be a contributing factor to the current average, as some buyers have been putting in offers and then withdrawing them if a property that better suits their requirements comes on to the market.'
Keeping on top of your paperwork and responding promptly to requests from your bank is another way that home buyers can avoid delays.
David Hollingworth, from mortgage company L&C, says: 'It pays for buyers to be on top of things all the way through. From the mortgage aspect, having your supporting documents ready to go so you have everything on hand, income verification, pay slips will only help to speed things through.
If things are late, you may get yourself into an admin queue, and providing information in a piecemeal way could put you at the back of the queue every time.
For first time buyers, Hollingworth also recommends working out an estimate of the associated costs when deciding what size of deposit they can afford to put down, and budgeting for a slight increase in the amount they will need to borrow in case they need to up their offer in order to keep a purchase on track.
'As there is a lack of supply you may have some homeowners getting further offers after accepting, for example if someone unexpectedly wades in with a higher offer,' he says.
'With any chain there is always a possibility something will go wrong that will have a knock-on impact.'
Rising Number Of Homeowners Expected To Be Rejected by Lenders
“Cost-of-living crisis continues to bite”
With the cost-of-living crisis continuing to put homeowners in a delicate position, and only expected to worsen with the energy bills price cap rise in October, many are looking to ways they can cut down on expenditures to help pay their bills.
In recent times the economy has been hard hit, with the pandemic and war in Ukraine impacting the market. On top of this, inflation has reached its highest point in four decades resulting in rumours of a possible recession.
“With the cost-of-living crisis continuing to bite, we expect to see an increasing number of people being rejected by high street lenders,” said Maeve Ward, director of commercial operations at Central Trust.
However, she explained that many specialist lenders will consider these cases and so borrowers should not necessarily panic.
“At Central Trust we refer to such borrowers as victims of circumstance; they were previously good payers but circumstances changed outside of their control which have led to them facing financial difficulty,” Ward said.
Anyone who is coming out of a fixed rate, or off a preferential rate, might find that they are being turned down by the high street which relies on automated, algorithmic lending decisions. According to Ward, it is not necessarily credit blips that will see borrowers fall victim – she said some may have lost their job and subsequently secured employment, but may not have been there long enough for the high street to get comfortable.
Others, Ward explained, may have had their income reduced, or may have changed career direction, going from employed to self-employed or contracting, adversely affecting their ability to borrow due to not being able to provide consistent evidence of income.
“Of course, the cost-of-living crisis is making an already difficult situation much more perilous for a number of borrowers,” she said.
With energy bills skyrocketing and inflation pushing supermarket bills through the roof, Ward outlined that it is inevitable the number of borrowers seen as ‘adverse’ will also rise.
However, she explained that the specialist market tends to look at cases on their individual merit, taking into account what has happened, studying patterns of behaviour and borrowing.
“This allows borrowers to repair and rebuild or merely achieve their goals until such time they are deemed a high street customer again,” Ward added.
With homeowners’ finances already in a delicate position, Gary Das, director of Active Financial said that there are many components in how the cost-of-living crisis has and is continuing to affect the ability of homeowners to pay their bills
“Since 2016 when I niched in self-employed mortgages, many of Active Financial’s clients have wanted their maximum affordability, and although lenders have put stress tests in place for affordability, I believe this did not account for the cost-of-living increasing so much,” he said.
Das explained that having been an adviser since 2003 and seen SVR at 5%+, he has always expected it to return to that level.
“There is no way it was going to stay so low forever. No-one has a crystal ball for where this is going to go rate wise but, in my opinion, when a client’s deal comes to an end, the rate will be much higher,” he added.
He also believes there will be a continuation of higher interest rates, which will mean repossessions, as well as downsizing. This, however, may result in property supply increasing and therefore house prices coming down as more demand is met.
“So for the advisers who market better than everyone else, who focus on a niche, and do not live in fear, they could scale up during what is an uncertain time,” he concluded.