Will 2021 be the year we see a truly Digital Property Market emerge?
The UK property market infrastructure remains a stubborn mix of digital, analogue, and paper processes resulting in an end-to-end home buying and mortgage process that is slow, inefficient and frustrating, with post lockdown demand driving the system and partnerships to the breaking point in 2020.
Even though 2020 was painful, is it possible that we will look back and see it as the year we started to build the foundations of a truly digital property market?
This blog looks at the significant amount of digital innovation happening within the UK property market, covering how public and private sector organisations are working together with industry groups on a range of digital transformation initiatives, e.g. data standards, property logbooks, e-signatures, digital identities, digital cash and connectivity.
Much of this work on building the foundations of a digital property market started well before 2020, but the pandemic changed these initiatives from innovation projects to immediate business imperatives.
Is 2021 set to be the year when some of the core digital transformation initiatives happening in the UK converge to deliver the foundations of a digital property market?
What is a digital property market?
Over recent years there has been in-depth research into the issues with the current home buying and selling process, e.g. BEIS (Department for Business Energy & Industrial Strategy) has conducted research on buying and selling homes, whilst the MHCLG (Ministry of Housing Communities and Local Government) has published a summary of responses to the Call for Evidence and government response on improving the home buying and selling process.
There have been papers on what the future might hold Council for Licensed Conveyancers (CLC) conveyancing 2030 discussion paper.
There is active industry level work on designing and building a more efficient market, e.g. Home Buying and Selling Group.
Looking at the research, the vision papers and the work in progress there appears to be a strong emerging consensus that a digital property market would consist of five foundational capabilities:
1. Data. Secure, reliable, trusted data available upfront and at the right time throughout the process.
2. Digital Identity. Robust friction-free identity framework for the property, buyers and sellers.
3. Digital Signatures. Secure, trusted, electronic and digital signatures.
4. Digital Cash. Trusted, safe, secure, real-time digital cash.
5. Connectivity. Ubiquitous connectivity real-time exchange of data & identities.
In turn, this blog explores each one of these capabilities looking at the current problems, the foundations being built, and the emerging digital future.
Data
What’s The Problem?
The problem with data in the property market is that the right data is not available, to the right person at the right time to make an immediate decision.
The data exists it’s just that it arrives with the person who depends on it to decide days, weeks, or extreme cases months after they need it, introducing delays.
Foundations Being Built
The HBSG (Home Buying and Selling Group) is a stakeholder body set up to assist MHCLG (Ministry Housing Communities and Local Government) develop and test improvements to the home buying and selling process.
The HBSG has a subgroup led by the Conveyancing Association and includes some of the industry’s leading property data providers. The sub-group has established an industry-standard data schema for ‘buying and selling property information’, (known as the BASPI).
The BASPI standard that defines the relevant information required about a property during the home moving process enables the right data to be collected upfront — reducing much of the delays and duplication in the current process whilst providing an improved consumer experience and the seller.
Another data initiative gathering momentum in 2020 has been residential or property logbooks.
Described as a digital file containing the key data required to enact a property transaction. A logbook should maintain and grow this information through the life of the property and be transferable between owners. A logbook should hold this information in a standardised and shareable format, allowing it to be integrated into other digital systems run by key industry partners such as estate agencies, conveyancers, local authorities.
HBSG has set up a working group, and in the latter half of 2020 there was significant press coverage about to introduction of logbooks including The Negotiator reporting:
Property logbooks for every home in the UK took a giant step towards reality yesterday following the inaugural meeting of the Residential Logbook Association (RLBA), attended by Ministry of Housing, Communities and Local Government representative Matt Prior.
The MHCLG is backing the initiative as it believes property logbooks lie at the heart of making house buying and renting quicker by removing many of the friction points that trip up transactions.
Emerging Digital Future
A digital property market would enable reliable, trusted data to be available to the right person at the right time in the process to support fast efficient and effective decision making.
With all of the work focused on delivering property data in real-time to those who need it including significant innovations planned by established data providers and industry bodies, including HBSG 2021 should see the foundational data elements of a digital market emerge.
Digital Identity
What’s the Problem?
The current paper-based, fragmented identity system within the property market is costly, inefficient, subject to fraud and highly frustrating for consumers.
Within the current system identities for the buyer and seller are created and validated by every business they interact with during the property deal, e.g. the estate agent, brokers, conveyancer and lender.
The current system for identity verification has significant inherent weaknesses with the Law Commission reporting that HM Land Registry has paid approximately £58 million in indemnity payments, specifically in relation to fraud. in the last ten years
Foundations Being Built
At the highest level, the UK government DCMS (Department of Culture, Media and Sport) announced plans to enable the use of digital identity across the UK, with plans to update existing laws with a new set of guiding principles for policy development.
2020 ended with the Minister for Digital Infrastructure, giving a speech on digital identity and its importance to the UK economy.
HMLR (HM Land Registry) publishing a blog the following day encouraging digital identity checking in conveyancing. The blog published a set of requirements to provide the market with clarity and help best steer investment and development.
HBSG established a subgroup The Digital Identity Group (DIG) to work on improving identity verification by creating a Digital Identity Trust Framework (DITF) enabling a consumer to have their identity asserted once, and then share this through the sales process. The project is due to have a draft scheme published by the first quarter of 2021.
These initiatives exist against a backdrop growing movement around the belief that ‘identity is a human right and that individuals must have “ownership” over their own identity’ see ID2020 Alliance Manifesto.
Trusted digital identities will be a stepping stone to giving people greater control of their identity data and the data related to their assets and property. 2021 will see new questions and increase focus around data ownership, data sharing and data privacy within the property transactions.
Emerging Digital Future
A fully digital property market would enable the creation, ownership and sharing of safe, secure and trusted digital identities for all the real-world actors involved in a property transaction, namely:
People, buyers and sellers
Properties, the physical asset
Legal Entities, businesses involved, e.g. estate agents and conveyancers
Delegates of Legal Entities , employees
A robust digital identity system would remove significant chunks of time, cost and risk from the home buying and mortgage process.
With all of the work focused on delivering a UK identity system, 2021 will be a year where we see the emergence of foundational elements of a digital identity framework and solutions for the property market.
Digital Signatures
What’s the Problem?
We all know the pain of having to print off documents to sign whilst being witnessed. Removing the need for ‘wet ink signatures & witnessing’ from the home buying process would remove a considerable amount of unnecessary friction, time and costs.
The inconvenience and effort of dealing with wet-signatures is one problem, the fact they present a significant fraud risk as they are relatively easy to copy and fake is another.
Foundations Being Built
HMLR (HM Land Registry) has been working with industry to aid the move to digital signatures.
In 2019 HMLR introduced the ‘sign your mortgage deed’ service, allowing homeowners who are re-mortgaging to sign their mortgage deed quickly and securely.
An update from HMLR in February 2020 stated that 7,000 mortgages have now been signed digitally.
In July 2020 in response to COVID-19, HMLR announced that it would temporarily allow the transfers of property ownership, leases, mortgages and other property dealings to now be signed electronically; a significant first step towards a digital property market.
It is worth noting that the current process is a witnessed e-signature, involving a conveyancer uploading the deed to an online platform which sends a link to the signatories. Once they have completed the necessary authentication checks, they would sign’ the document electronically in the witness’s physical presence who then also signs.
The next step for the market would be entirely digital signatures, or what HMLR call “qualified electronic signatures”, a digital signature that verifies the signatory’s identity before they sign.
A digital signature would depend on a trusted digital identity solution being in place. Therefore the issuing of requirements by HMLR for accepted digital identities is a significant step. Once in place, this capability will enable buyers and sellers to digitally sign artefacts from their mobile device without the need for a witness.
Emerging Digital Future
A digital property market would enable the use of trusted digital signatures throughout the home buying and mortgage process.
The pandemic has placed a bright light on the antiquated nature of wet-signatures. While the move to e-signatures is a significant positive step forward, the industry must implement full digital signatures.
Digital signatures would not only drive significant efficiencies but also reduce the risk of fraud.
With the drive from government and HMLR, 2021 will see solid foundations for implementing digital-signature solutions emerge.
Digital Currency
What’s the Problem
The movement of money in the current property transaction is slow, sequential, requires lots of manual intervention and is prone to fraud.
On the point of funds moving, we have the pain of lining up the movement of funds through the chain.
On the point of fraud, a report in 2019 showed that over the last 14 years, 678 property fraud claims had been made — with the total pay-out amounting to £73.3 million.
Two frauds that happen time and again are the:
Friday afternoon fraud. This is where hackers take advantage of the rush to complete on Friday. After hacking emails, they will send fake details to buyers for them to send money.
Intercepted deposits: Scammers try to intercept the emails with a slightly different address changing the payment details.
Foundations Being Built
The Bank of England has been working on the next generation of the Real-Time Gross Settlement (RTGS) service, which has a significant workstream on “settlement.”
6.1 settlement models — The new system will include updated features like automated notifications, increased information exchange capacity and the option to forward schedule movements between accounts in RTGS. It will have the capacity to support a diverse range of settlement models, including systems operating on innovative payment technologies, such as those built on Distributed Ledger Technology (DLT).”
In addition to working on the RGTS replacement, the Bank has been doing detailed research on issuing a Central Bank Digital Currency (CBDC) which
Whilst the Bank has not yet made a decision on whether to introduce CBDC it is clear that the global direction of travel is towards digital currencies.
Indeed, when writing this blog, the US bank regulator issues a statement clarifying that it was legally permissible for US banks to operate DLT nodes and administer digital payment and stable coins on the network.
In Europe design on a digital euro is well advanced
“In this new era, a digital euro would guarantee that citizens in the euro area can maintain free access to a simple, universally accepted, safe and trusted means of payment.
A digital euro would be an electronic form of central bank money accessible to all citizens and firms — like banknotes but in a digital form. It is not meant to replace cash, but rather to complement it. Together, they give people more choices about how to pay, and make it easier for them to do so increasing financial inclusion.”
Emerging Digital Future
The introduction of digital currency, stable coins or even tokens would enable the real-time, safe, secure transfer of funds in the property transaction.
Digital cash has some unique properties that can make it more secure. It is often referred to as programmable money as it can be programmed only to be spent in an intended way by the intended recipient. It can also be programmed to only transfer if a given set of events have happened, e.g. the contracts have been signed by all parties.
Whilst there is significant momentum at a global and national level behind digital currencies, the banking and payments system takes time to change, expect it to be 2022 before any meaningful digital cash foundations start to emerge.
Connectivity
What's the Problem
The software the runs the property market is not connected, and this means that data, identities, digital signatures cannot be shared safely, securely in real-time.
A key problem is that there is a commonly held assumption that the only way to get ubiquitous connectivity at a market level is for everyone to connect to the same central platform, e.g., some central government-mandated e-conveyancing platform.
This assumption and solution of a single central e-conveyancing platform have been around for over twenty years (see the 2002 Property Act). The act envisages all aspects of a transaction, from the provision of information to the registration of dispositions, would occur electronically in a central system.
There have been projects on building this type of central e-conveyancing platform by HMLR and the Law Society.
The issue is 20 years on, and the market does not have a solution, so might it be that a central data aggregation platform is not the solution?
Indeed in 2018 MHCLG accepted that this long-envisioned panacea of a central platform to rule all platforms and provide ubiquitous connectivity was not going to arrive. They were certainly not going to mandate it. “via a large number of small increments rather than a single panacea…we do not think that mandating a move to e-conveyancing through legislation would be helpful at this point”.
As well as introducing delays and inefficiencies, the lack of secure digital connectivity means the industry suffers from excessive digital fraud levels.
A quote from Paula Higgins, founder and CEO, at Home Owners Alliance, sums up the challenges for the market:
“Unfortunately, the value of successful frauds of property sales have more than tripled — from £7m in 2013 to £25m in 2017. Email and IT systems (especially those of conveyancers) are being attacked continuously. Scammers are becoming more sophisticated — fake emails can now be tough to spot, and people may find themselves caught out, especially when under the stress of buying a home.”
Foundations Being Built
Several leading software companies within the industry are beginning to take a new perspective. Recognising that a winner-takes-all centralised platform has not materialised, they advocate for a move to a winning-takes-all collaborative model where the software that runs that market is connected.
Many software providers ahead of 2020 had started to invest in opening up their platforms by building API infrastructure.
The maturation of enterprise blockchain technology provides a new opportunity for accelerating software providers’ API goals by providing a single digital backbone removing the need for multiple bespoke point-to-point connections.
Coadjute has built an industry distributed ledger network and has signed up leading industry software providers to run nodes.
This distributed ledger network will provide a common digital backbone for the industry, enabling a user of connected software to connect, interact, and transact with other connect software users.
With the decentralised model, the network operator Coadjute does not run a central database or have a user portal. The user data and interface stay with the current software provider.
This digital backbone enables data synchronisation / single source of truth across systems, removing manual reconciliation.
Property data, message, documents, digital identities, digital signatures and in due course, digital cash can all be transmitted across a highly secure banking grade digital backbone. Fraudsters ability to commit today’s most common attacks will radically reduce with this technology.
Emerging Digital Future
Coadjute, along with leading property software firms are launching the industry distributed ledger network in 2021.
The network’s introduction will represent a significant piece of foundational infrastructure for the market. Reducing the time it takes to integrate software systems, improving security and privacy for users and providing a digital backbone for sharing data, documents, messages, identities and in due course cash.
Conclusion
The UK property market started its digitisation journey over two decades ago, and within each market segment, leading software providers have enabled firms to digitise and optimise their operations.
When you look inside any estate agent, conveyancer, broker or bank its radically different to twenty years ago. Case management, CRM, mortgage origination platforms have transformed the operational workflows inside firms.
However, if we think about this at a market level and consider inter-organisational workflow, it is astonishing to see how little things have changed over the last twenty years. Yes, we have some APIs, but the vast majority of inter-organisational communication is still over email and phone. The software that runs the market is not connected, meaning end-to-end property transactions remains stubbornly analogue, opaque and slow.
This blog’s question is, can we do for the market over the next five years what we have done for individual firms over the last 20 years? Can we build a digital property market, and will this year be the year we see the foundational elements emerging?
Scanning the market challenges and looking at the emerging solutions, five foundational elements need to be in place — Real-time Property Data, Digital Identities, Digital Signatures, Digital Currency and Ubiquitous Connectivity.
It will take more than one year for all the foundational elements to converge and nicely slot into place, but they are being driven forward by talented teams from across the public and private sector. So we can enter 2021 with confidence that this will be the year we see the emerging foundations of the worlds first truly digital property market.
Disclosure
I am COO at Coadjute the company working on a DLT backbone for the UK property market referred to in this blog.
