What Is A Property Chain?
Property chains are fairly common in residential property transactions. A property chain occurs when there is more than one buyer involved in a property transaction and each party relies on the others completing their purchase, necessitating the other transactions. If you are a first time buyer, or moving from a rented house, the person from whom you are buying might be purchasing another house. You would become the end of the housing chain and reliant on their new purchase. First time buyers are an attractive option from a seller’s point of view due to the lack of chain they come with.
If you already own a property, you might have to sell it in order to be able to buy your new home, creating a link in the property chain. If the person buying your property also has a sale to make, this adds another. The longer the housing chain, the more risk there is in one of the links falling out, an obstacle for all buyers and sellers involved making their sales and purchases.
Why might a property chain collapse?
There are many reasons a property chain might collapse. Here are some of the most common reasons:
- A buyer somewhere down the line might be refused a mortgage.
- One of the buyers or sellers might simply change their mind.
- A property survey could reveal problems that the buyer finds unacceptable.
- One of the conveyance solicitors may be slow in processing information.
- A buyer or seller may try to renegotiate the terms of the transaction.
- Unforeseen events such as loss of job, illness or accident, might alter a party’s needs.
Sometimes it is impossible to avoid breaking a housing chain but maintaining good communications often keeps problems to a minimum.
How can I prevent breaking a property chain?
In general, it is the job of the professionals, namely the conveyancing solicitors, to keep communicating, making sure everyone is doing what they are supposed to. Some estate agents have dedicated sales-progression teams whose main objective is to keep things moving forward. Some firms do not have such teams and/or are simply not that great at managing the process. In this case you may want to step in to keep the momentum going. Keep asking your estate agent and conveyance solicitor to chase people up who are stalling things. Here is a breakdown on how to maintain an effective property chain:
- Do your research when choosing a conveyance solicitor
- Don’t choose a conveyance solicitor simply based on the cheapest quote. Make a comparison of all the services offered and read reviews
- Look specifically to buy a chain free property
- Make sure your finances are in place well before you make an offer on a property
- Maintain good communication with everyone involved in the housing chain, especially the estate agent and conveyancing solicitors
- Air any concerns early on. If you discover something that you think might affect the chain, flag it up as soon as possible
- If you are selling a property as well as buying one, you will have to supply information about the property. Get this together this to hand in advance to avoid delays
- Discuss potential time frames early on so that everyone involved is clear on your expectations
- If the property chain is fairly long, agree for one person (perhaps your conveyance solicitor) to be the central contact
- File everything, including all correspondence
- Have copies of documents that are likely to be requested to hand
- Sign and return all paperwork promptly
- Deliver documents by hand or special delivery
How do I avoid getting in a property chain?
Finding yourself stuck in a housing chain can be stressful and expensive. If just one person drops out, the whole chain can collapse, and you and everyone else can suffer emotionally and financially as a result.
There are three main ways to avoid ending up in a housing chain:
- Sell before you buy: This way you are not reliant on the sale of one house to buy the next. It also puts you in a really strong negotiating position meaning you could get a better price when you negotiate on a new property, especially if you find a seller who is keen to move quickly. Selling first also means you know exactly how much you have to spend and buying your new home won’t be dependent on you achieving the expected price on your existing one.
If you sell first, hoping to buy soon after, you may have to rent for a while if there is nothing suitable on the market. This can prove very costly. Also, if prices are rising, then by the time you’ve sold, a new house could be unaffordable.
- Get a bridging loan: A bridging loan is a short-term loan secured against a property which you pay off once you sell. They can be risky and expensive, but if you really can’t miss out on your dream home and need a deposit straight away, it might be worth looking into.
Bridging loans are high interest. If possible, only sign for one after you have exchanged contracts in case you get gazumped. Also, if you fail to sell your house straight after, you might have difficulties making repayments due to the interest builds up and if property prices fall, you may be unable to pay off the loan. Only consider a bridging loan if you have a fair amount of equity in your current property
Increase the mortgage on an existing property to use as a deposit rather than rely on a sale: This might mean remortgaging to a ‘let to buy’ mortgage and renting out your old home, with the rental income paying its mortgage. on that property. This can be a good investment property. You can only do this if you have a low loan to value ratio (LTV ratio) on your present mortgage.
You should do this as soon as possible after you have exchanged contracts since getting gazumped would leave you with extensive debt, accumulating interest. Look out for, and avoid, mortgages with early repayment penalties and remember: if you cannot sell your house afterwards you may owe lenders more than you can afford to repay each month .