Blockchain technology: what does the future hold for residential property transactions?

On average, each residential property transaction has eight different parties in addition to the purchaser and seller – all sharing information and documentation. These include estate agents, mortgage brokers and search providers, who never have contact with each other. 

Solicitors for each party collect information from the various parties and then share it with the various relevant parties. Typical property transactions can take anywhere from six weeks to a few months, and often chains are held up whilst information is being sought from third parties.

In April 2019, Instant Property Network (IPN) completed the first-ever test for a blockchain property transaction system. It is claimed that this system could reduce the average time for a property transaction down to less than three weeks. 

Not only would this have the considerable advantage of making property transactions more time-effective and efficient, but it could equate to a global annual saving of £118 billion.

Who would not want a quicker and more cost-effective property transaction system?

How does blockchain work?

Blockchain is a digitised ledger that democratises access and increases trust by being a single unalterable source of truth for information. 

The technology enables the tracking of transactions and records across a distributed network of computers. As a broad overview, this is how it would work:

• Firstly, a property transaction (e.g. sale/purchase) is requested. A proposed seller would send to the blockchain some basic information such as their location, desired sale price and other ownership information.
   
• This request is then broadcast to a network of computers (in the context of blockchain, the computers are known as ‘nodes’).
   
• The nodes then process the request using pre-set algorithms.
   
• The request is then verified by all of the nodes on the network.
   
• Once verified, the ledger is updated with a new block of data. A smart contract is formed pulling from a database that uses the property laws of England and Wales to create its terms and conditions relevant to the transaction.
   
• The data block is added to the blockchain and, importantly, cannot be deleted or altered by anyone.

The below outlines how this fits in with the current conveyancing process:

• The seller and purchaser would agree to standard terms of sale (pre-exchange stage).
   
• The key terms would be submitted to the blockchain, and a smart contract would be entered into by the parties (exchange stage).
   
• The purchaser transfers their deposit to smart contract escrow (a legal arrangement where a third party temporarily holds large sums of money until a particular condition has been met).
   
• The lender will then transfer their mortgage advance to the smart contract escrow.
   
• Once all purchase monies are in the smart contract escrow, the seller receives their payment, and the property is transferred to the purchaser (completion stage).
   
• The Land Registry records are updated by the blockchain and recorded in the title register.

The benefits of this process are endless. Anti-money laundering checks, identity verification and origin of funds information can be held and verified using blockchain. 

These checks would be carried out on individuals before they were allowed access to the blockchain so the technology could verify that individuals are who they say they are. 

Furthermore, the lender’s requirements would be met with ease, with all important documentation being held securely on the blockchain. The lender would be a party to the blockchain and would have access to the documentation they needed.

Blockchain technology in residential property would remove the middlemen and create a centralised database of information on the property transaction, increasing trust and saving time (and money!). 

Although blockchain has yet to become mainstream, investors are increasing the likelihood of this way of working becoming commonplace. Blockchain would truly revolutionise residential property, and we will likely see its application in the not-too-distant future.

Contact our residential property team

If you have any questions about the conveyancing process or property transactions in general, please do not hesitate to contact our residential property team.

SO Legal has experienced solicitors and conveyancers in Brighton, Eastbourne, Hastings, London and Uckfield, and we work with clients across the UK.