How To Break The Housing Chain
Whether you’re buying or selling a home, a housing chain is both frustrating and costly, and it may mean you can neither sell your home nor buy the new one that you want. After all, just a single hiccup in the chain may mean it collapses, and everyone involved may end up back where they started. How do you break out of a housing chain, though? This guide can help.
What is a Housing Chain?
Sometimes called a property chain, a housing chain happens when several buyers and sellers are linked together, trying to sell their properties to each other. Each buyer or seller is another link in the chain. Each transaction depends on the next one to be successful. You might think of it this way. Joe would like to enter the property market for the first time. He places a bid on Winston’s house. Winston accepts his bid, but he needs a new house since Joe is buying his. Winston places a bid on Arnold’s house. Arnold is selling his house to move into a care facility. The buyer at the start of the chain – Joe – is buying a property without the need for a sale to make the transaction happen. The seller at the end of the chain – Arnold – isn’t buying another property. He’s just selling, thus completing the chain. The person in the middle – Winston – is reliant both on Joe and on Arnold to complete the chain. If Joe changes his mind, Winston can’t buy Arnold’s house, thus creating a break in the chain. The problem, however, is that this chain is significantly simplified. Most property chains are far longer and more complex.
Ultimately, a property chain is about the buyers and sellers involved, but the simple reality is that there are many other people involved given that each link has several support people working to complete the deal, and they all must align to make that happen. In the chain above, for example, you could have as many as three different estate agents and three different conveyancing solicitors just to ensure that the real estate process moves quickly. Add the various lenders into the mix, and you have quite a bit of complication.
Are No Upward Chain Sales Better?
Often you’ll see property sales listed as No Upward Chain. This means that the person selling the property has no intention of buying another property at this time. It’s a way to break the chain house buying creates. There are several reasons for this, but often this occurs when someone is purchasing a new build, as they’re buying directly from the builder, thus don’t need to further the property chain.
These sales aren’t necessarily better, but they can be significantly simpler than a sale with a long chain that is associated with it. Sales that are breaking the chain on a house move along significantly simpler for everyone involved.
Are Chain-Free Sales Better?
Chain-free sales mean no one involved has to worry about buying or selling a property. The reason for this usually involves new builds, cash buyers, or first-time buyers. These kinds of sales are better for everyone involved, but they’re typically not realistic, as one would have to buy directly from a developer or from someone who is looking to sell without buying again right away, and any other sales that need to take place for those involved would also need to have similar circumstances. Generally, those sales that are breaking the chain on a house move faster than those with a chain.
Breaking the Chain on a House – Move Your Property off the Market Faster
If chain-free sales make a better buying and selling experience for everyone, how can you involve yourself in chain break house buying and selling? You really have four different options as a home seller.
- Selling Before You Purchase Another Home: For many people selling their home before they choose to buy their next home is a way to ensure the property chain simply doesn’t affect them. Typically, these individuals go into a rented home or flat as they shop for the right option, and there are a number of different advantages to doing things this way. First, the seller remains in complete control of the sale. There’s no real pressure to sell quickly, and you don’t have to worry about selling your home for less than it’s worth. Second, you hold a stronger negotiating position because you’re really not in a hurry to get rid of your existing property. Third, it helps you better understand just how much you have to spend on a new property because the money you have from your current sale is already in the bank. Finally, you have the ability to wait for the housing market to bend your way. There are, though, some disadvantages to this method. Perhaps the most important one is that rent tends to be more expensive than a mortgage, so if it takes you some time to locate your next property, you may find quite high rental costs involved in the process. The other real drawback with this process has to do with the market itself. If prices are on the rise, by the time you actually sell your property – which can take a few months – you may find a property to be far less affordable when you choose to buy.
- Obtaining a Bridging Loan: You could also break the housing chain house buying sometimes creates by getting a bridging loan. That will allow you to purchase your new home before you actually sell your current loans. It’s one method of chain break house buying. Bridging loans are only made for a short-term property purchase. They allow you to literally bridge the gap between selling your property and buying a new one. They can be arranged quite quickly in the event that you’ve found your dream home and you need to place a deposit to hold it. There are several advantages to this type of loan. First, they help you break out of the property chain. Second, they can show a buyer that you’re quite serious about buying the property. Third, they put you in your dream home rather quickly. There are also some disadvantages to this method, though. They’re quite expensive loans, and they’re secured borrowing, so you’ll need to place an asset against them – like a property – which will be confiscated if you cannot repay the loan. The interest rates and payments are rather expensive, and they come with many different fees. That means if you cannot sell your home soon after you’ve bought the new one, you may have trouble paying back that loan because the interest will build up. That may put you under additional pressure to accept a lower price on your old house so you can pay off the bridging loan. Should property prices fall in the process, you may be left without a way to actually pay off that loan. One of the best ways to avoid this, but take advantage of a bridging loan is to sign the contract for one after you’ve exchanged draft contracts with a buyer or to wait until you’ve seen some interest in your current property before you sign the papers on one.
- Using the Equity In Your Current Mortgage: The last way to ensure you don’t create a property chain is to extend the mortgage on your current home and use the equity as a deposit for your new property. There are a few different ways to do this. Initially, you can rent out your current home, then use the rental income to pay the mortgage on your second property. This is often known as a “let to buy,” and it can be a good deal for everyone involved. You could also simply use the money to get a new mortgage, and then sell your old home when you’re ready. While you’ll have two mortgages, you’ll be able to use all of the profits from the sale to help pay off part of the new mortgage. Keep in mind that neither of these solutions is possible if you don’t have a low loan-to-value ratio. There are a few drawbacks involved. First, you could end up with fairly high mortgage debt and interest payments if the sale of your home doesn’t happen in the timeline you planned. Second, you could end up paying early repayment penalties depending on the terms of your mortgage. Finally, you may find you cannot afford the mortgage payments on more than one home at a time after you’ve extended the mortgage, so be careful before you undertake this type of loan.
- Sell Your Home to a Cash Buyer: This is a great way to break the property chain, but it’s a method that many people overlook. Cash buyers aren’t typically part of the property chain because they are usually investors or those with the money on hand to buy your house outright. While you may sell your property for less with a cash buyer, it may be worth it because there are very few things that can stop a cash sale. If, for example, you sell your home to a cash investor, you may still recover 80% of the purchase price of the home, and often the cash investor will pay all of the fees, so you don’t have to worry about the cost of an estate agent or a conveyancing solicitor. The result is that you can sell your property often in as little as two weeks without worrying about market conditions, the collapse of a chain, or the frustrations that so often come with the home sales process.
Why Do Property Chains Fail?
Property chains usually fail because there are so many steps involved for each of the properties in the chain itself. Not all of them fail, though. Some of them just begin to grind quite slowly, which could eventually cause them to fail because one party gets frustrated. Wondering what causes these holdups and failures? In some cases, one of the parties in the chain doesn’t instruct his or her solicitor fast enough. Sometimes they haven’t even reserved a solicitor to get the help they need. In other cases, estate agents aren’t being proactive enough to ensure all of the paperwork is handled in a timely fashion. Still, in other cases, buyers and sellers don’t know enough about the process to move on to the next step. In other cases, though, the survey reports show problems within the chain, which can lead to repairs that must be handled before a sale can go through. That, in turn, holds up the chain itself.
Any delay may mean that incorrect information is on the mortgage documentation, creating additional delays. It could also mean the expiration of mortgage offers. Additionally, those involved may change their minds for any reason, but primarily because the chain is moving ahead so slowly.
Fortunately, there are some things you can do to help avoid a house chain break if you’re a member of the chain. First, keep in mind that you are part of the chain. Your link affects others involved, thus all of your actions with regard to the purchase of a property or selling your own property matter greatly. You don’t want to be the one to make the house chain break. Do your homework as you select an estate agent and a conveyancing solicitor. This will help to ensure you have the best people on the job to handle your property sale. Instruct those involved at each stage of the transaction as quickly as you can. Frequent communication can help to push things forward. Given that one unsigned document creates real issues, continually ensuring you’re in the loop and that you keep everyone on board abreast of the changing situation is essential. To do so, make sure you have the correct details of everyone involved at all times. Keep a solid record of everything happening, and make sure all of the paperwork you might need is on hand. Any time you’re asked to sign and return a document, be sure you do it as quickly as possible, then send the paperwork via special delivery. Be ready for each new milestone, including exchange day, by preparing funds or other paperwork well ahead of time.
If you’re not already familiar with the process of buying and selling a home, the time to educate yourself is immediately before entering the property market. This will help you avoid being the one to break the chain because you know what to do next and whom to communicate with before the next step is due to happen. That will help you stay on the right page, and it may even give you the opportunity to offer advice to others in the chain.
What to Do if Your Property Chain Fails
If your property chain breaks and leaves you in the lurch, there’s really not much you can do. You may miss out on an opportunity to buy a really nice property, and you may end up paying fees, like those to your conveyancing solicitor, that you should only have had to pay at the conclusion of the sale of your property. It may be worth it to do some search to get a Home Buyers Protection insurance policy that will help to cover those fees should something go wrong.
If something does go wrong, all you can really do is pick up and try again in the sale of your home or in the purchase of another one. Know that it happens regularly to many people who are involved in a property chain, and you’re not alone.