Property chains are commonplace in the UK. Unless both the buyer and the seller are cash or first-time buyers, the successful completion of a house sale will be reliant on the sale of at least one other property. Property chain problems are a common cause of delays and failed sales, which can result in added expense and stress. So, how can you avoid these problems and keep a house sale progressing smoothly towards a timely completion?
Whether you’re selling a home, looking to buy or planning your next property development, understanding what the most common property chain problems are and how you can avoid them will help you achieve your objective. The success of property developments relies on fast property completion. Selling to buyers locked into a chain can result in delays and lost business. By developing a good understanding of the property chain problems your clients may face, you’re better placed to help them overcome these obstacles and keep your project development process on track.
Are Property Chain Problems a Big Deal?
According to research by Which?, one in five failed house sales in the UK are caused by buyers unable to sell their homes. The majority of failed sales result in the buyer losing considerable amounts of money due to unrecovered conveyancing, valuation, brokerage and survey costs. Government figures in 2017 revealed that failed home sales cost homeowners over £500m a year. For developers, when a buyer pulls out, their project falls behind and it becomes more challenging to attract more house buyers.
Common Property Chain Problems
Why do property chains break? Understanding the potential problems can help you to put strategies in place to avoid them.
Failed Mortgage Application. Homebuyers have faced stricter lending criteria since new rules came into force in April 2014, following the mortgage market review (MMR). In 2017 even more stringent rules on mortgage affordability were introduced by the Bank of England in its Financial Stability Report. As a result, an increasing number of house sales fall through because the buyer lacks sufficient finance. One study found that 11.5% of all house sales in 2018 failed for this reason.
Survey Results. There is no legal requirement for a buyer to pay for a survey on a property before they buy it. As many as four in five buyers take the gamble and don’t pay for a survey. However, when a survey occurs and reveals significant problems, this can result in a failed sale — especially if the seller is unwilling or unable to reduce the sale price as per the estimated costs of repair.
Gazumping. The Which? report found 21% of house sales failed because the vendor accepted a higher offer from another buyer, “gazumping” the buyer they originally accepted an offer from.
The Seller or Buyer Changes Their Mind. The majority of property chain breaks are due to one party changing their mind. The seller may decide to take their property off the market, or the buyer may find another home to purchase — or decide they don’t like the house enough to buy it.
Personal Circumstances. Some house sales fail because one party has a change in personal circumstances, such as illness or a relationship breakdown. If a couple arranges a mortgage based on their combined income, if they choose to separate, they may be unable to secure sufficient financing on their salary alone.
How to Avoid Property Chain Problems
Choose a Chain-Free Buyer. Sellers can avoid all of these headaches by steering clear of property chains, or at least, making sure their buyer is chain-free. If a homeowner has several similar offers on the table, they could prioritise first time or cash buyers who are not involved in a chain.
Sell and Rent While You Shop. By selling a home and moving into rented accommodation before offering on a new property, a buyer can make themselves an attractive, chain-free prospect to sellers.
Prioritise Chain-Free Properties. Buyers who are in no rush to move or who have plenty of properties to choose from can avoid property chain problems by focusing their search on properties with no upward chain. For example, if the previous owner has died, they can purchase the property as a vacant possession.
Opt for a New-Build Home. Buying a new-build home comes with several benefits for buyers wishing to avoid getting trapped in a chain. There is no upward chain and many developers offer part-exchange schemes, whereby they purchase your house and deduct the agreed sale price from the cost of the new-build property. This speeds up the process and means the buyer stays chain-free. Part-exchange is beneficial to both buyers and developers. Developers can avoid losing sales or experiencing delays by offering these schemes, allowing them to keep their project on track.
Use a House Buying Service. This is the fastest way to sell a house and provides a guaranteed sale. Property Development Hub can turnaround an offer within 24 hours of valuation. We will purchase any property in England and Wales— regardless of its condition. In this scenario, there is no chain on the buyer’s side.
Agree on a Moving Date. Effective communication between the buyer and the seller (via their solicitors) is crucial to avoid property chain problems. Some buyers will pull out of a sale if things take too long or the seller fails to commit to a moving date. If the speed of sale is an important factor, negotiate and agree on a firm moving date as soon as possible. Some vendors may be willing to move into temporary accommodation to prevent the sale from falling through.
Get Your Finances in Place. To avoid a purchase falling through due to a failed mortgage application, be honest with your lender about your financial situation. It’s a good idea to obtain an “agreement in principle” before you start shopping. This will prevent you from offering on a property beyond your budget.
How to Mend a Broken Property Chain
Despite all the best intentions, buyers and sellers can find themselves caught up in a broken property chain. Is it possible to mend a chain when problems arise?
Yes, but there is often compromise involved. If the seller withdraws and you don’t want to lose your buyer, consider moving into rented accommodation, while you find a new property or broaden your purchase criteria and find another home to buy quickly. If you cannot get a big enough mortgage to cover the asking price of the house you want to buy, try making a lower offer. The seller may be keen to move quickly and accept.
Property developers can help their buyers to overcome property chain problems by offering a part-exchange scheme or working with an expert property company such as Property Development Hub to provide chain repair services or a guaranteed purchase. Original article is here.
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