Russ Albert, Payment Subject Matter Expert at PEXA, looks at the UK’s need for change in property payments – and what PEXA Pay is bringing to the table
Property transactions are one of the most significant ventures any of us will ever undertake – both emotionally and financially. Whether it’s a purchase, sale, or a remortgage, the way in which money transfers between parties to enable these transactions is crucial.
The current cost of living crisis has likely prompted more attention on this as homeowners seeking to remortgage undoubtedly want their change in lenders effected as quickly and cost-effectively as possible so they can take advantage of their new rate.
If you take a moment to step back and consider how money transfers for property matters are completed today, you might well be convinced that a reasonably poor and clunky process has been normalised.
Wholesale change has been challenging
If you consider, in a simple “like-for-like” remortgage, that sequential payments are made from lender A to conveyancer B to lender C, through a payment system that was not built for that purpose, you might well ask yourself why. And when you then consider some of the other processes that exist around this transaction including mortgage offers, redemption statement requests and certificates of title, along with the actual money transfer itself, you might well conclude that, whilst automation and innovation have made marginal improvements, these types of transactions are ripe for innovation.
A remortgage which typically involves one underlying consumer is, on the face of it, an easier transaction to manage and control. Much of the heavy lifting is done in the background, away from consumers’ attention, and thus their expectations are low. This changes significantly in a sale and purchase scenario, where numerous transfers of monies between firms and lenders are made, reflecting multiple parties in a chain.
Thankfully, change is weaving its way through the industry, but this journey will require wholesale infrastructure reform rather than iterative enhancements to the existing process. Progress to date has been slow, which is perhaps understandable given the importance of security, the need for strong regulation, and the number of moving parts and parties and systems involved in each and every transaction.
The continual never-ending road of additional regulation and controls has been seen more recently as part of the problem rather than the solution, especially since some regulations have been forced on to property transactions when the main protagonist is not the industry.
The UK now has a payments system dedicated to property transactions
At long last, the area of payments and the payments system itself is being enhanced. The overreliance on CHAPS, whilst fully secure, does have its restrictions and shortcomings. For example, the window of availability is restrictive and the need for sequential, individual payments per transaction via third parties leaves it open to error, miscalculation, and even a higher risk of fraud. It simply was not built to handle the number of payments it processes today.
Therefore, however “automated” and “integrated” property transactions and remortgages become, a truly end-to-end automated and digital transaction cannot be processed via CHAPS. A new payments scheme as a key cornerstone of the improvement our property transactions need is long overdue.
“PEXA Pay” is the UK’s seventh net settlement payment scheme to settle through the Bank of England. PEXA Pay is delivering a long due transformation to property transactions by providing the UK housing market with a fit for purpose payment scheme.
PEXA Pay has been specifically designed for housing transactions in the UK. In the context of a remortgage, it links lenders together, producing an instruction requesting irrevocable funds exchange between them at central bank level, which is delivered securely to the Bank of England, and actioned automatically.
What this means for the industry
On a more practical level, this means the end of individual payments for lenders, of needing to transfer funds in advance of a transaction completing, and the start of being able to rely on an automated payments process that will not only reduce their operational overheads, but provide an uplift in their liquidity positions.
Law firms will benefit from increased visibility over the movement of funds, giving them more certainty of completion, and meaning they will no longer need to monitor their accounts for the arrival of funds from lenders.
It is then hoped that these efficiencies will flow through to consumers in the form of increased confidence when undertaking property transactions.
PEXA Pay has been tested by 10+ lenders in the UK, with more preparing to do the same. As more lenders and law firms join the PEXA network, these benefits become more widespread – and that’s when the industry’s transformation will truly begin to take effect.
Russ is PEXA’s Payment SME, and has brought more than 20 years’ experience in payments and payment architecture gleaned from roles with a number of global organisations to the team in the UK. Russ has primary responsibility for PEXA Pay, the seventh net settlement payment scheme to settle through the Bank of England, which involves working closely with the Bank of England, ClearBank (PEXA’s transaction bank), and lenders.
This article was submitted to be published by PEXA as part of their advertising agreement with Today’s Conveyancer. The views expressed in this article are those of the submitter and not those of Today’s Conveyancer.
