Fully digital property transactions are closer than we think

In case you missed April’s announcement, Coadjute has had the pleasure of being involved in Project Meridian, a highly collaborative effort between the Bank of England (BoE), HM Land Registry (HMLR), and the Bank for International Settlements (BIS) Innovation Hub.

Why are we calling this to your attention a second time? Because the results of this venture could have significant implications across the entire UK property market, and we think that is news worth hearing twice.

While you can dive into the details of the full report on this innovative automated settlement service, we wanted to take this opportunity to clarify exactly what this means for the property market, and why it’s so important for buyers and sellers.

From an antiquated manual settlement process…

The process of buying a house in England and Wales is complex and opaque. At the point of exchange and completion, uncertainty lies right at the heart of those critical moments, most notably when significant amounts of money change hands, which is a sizeable source of stress for those involved. The process is also manually intensive for the conveyancers, and there continues to be a potential risk for fraud.

Whilst settlement services have been proposed before such as using the Bank of England’s existing payment rails, which are the platforms that allow digital money transfers to be made between payers and payees, such as bank accounts, credit cards, and PayPal. However, these all employ methods for the transfer of funds that require a third party to conduct the settlement process. It is also reliant on payment approaches that many predict will become obsolete in future, as Central Banks move toward more secure forms of payment such as Digital Currency.

…To an innovative automated settlement service

Built on distributed ledger technology, the Project Meridian prototype that Coadjute developed with the Bank of England successfully enables the automatic settlement of a housing property transaction in England and Wales. The project proved that the movement of funds on the Bank of England RTGS system can be intricately linked to the legal requirements for changing ownership of the property and information needed by HM Land Registry to update the property register and settle automatically.

But what does this mean for buyers and sellers? Let's break down a couple of areas that the Project Meridian prototype has addressed.

Automating manual processes

Cited by around a quarter of conveyancers, the automation of manual processes is one of the most important aspects of a property transaction that needs improving.

The Meridian prototype digitises the workflow, such that the information required at settlement is a prerequisite for starting the settlement. This cleverly avoids the manual steps and exchanging of paper-based documents, which typically increase the risk, and cost, of transactions falling through due to missing information at crunch time.

Increased transparency

The best way to overcome uncertainty is by having more transparency of the moving parts of the transaction. The digitisation provided by the prototype enables all participants to see the progress in real-time, and means the lack of clarity and insufficient communication that is cited as a problem by around half of those involved in a property transaction is solved for.

The configuration of the network gives each party access to the information that is relevant for the role they play in the transaction, and if any information is updated it’s done so simultaneously for all parties. Messages can even be exchanged securely between parties to further improve communication and transparency.

No last-minute fall-throughs

Another achievement of the prototype was its success in holding and earmarking the funds required for settlement, which reduces uncertainty that the transaction might not settle. In some instances, a transaction has failed at the settlement stage because the funds are not sufficient to cover the purchase, something all too often is noticed far too late.

Imagine a transaction process that provides you with an exact time for when completion will take place. “Friday morning at the latest” becomes a specific timestamp of Friday at exactly 11:05, giving you peace of mind that the funds will have been transferred. You could have your removals booked for 11:10 and never have to worry about delays or worse, the transaction failing at the last minute.

The future – faster, cheaper, and more secure transactions

Coadjute were selected in 2022 to work on the project through a global open tender process against some of the largest technology firms in the world, and we’ve applied our leading expertise of distributed ledger technology to enable the seamless connection of conveyancers, banks and HMLR through completely open industry standards for property data.

The Bank of England has hailed the potential of the system to significantly reduce the time, costs and risk incurred in the transaction process, and have said it highlights the potential for significant further innovations by the property sector and public sector bodies involved in a housing transaction.

For more detail on the project, you can read the full report here.