When it comes to buying or selling a residential property, the last thing you need is the added stress and uncertainty caused by a broken or problematic property chain. A property chain is commonly used to describe the link between all of the properties involved in the transaction, starting from the buyer at the very bottom to the seller at the top. Problems in the chain can cause delays, additional costs and even failed transactions. In this article, we will look at the problems that can be caused by a property chain and how to avoid these issues.
What is a property chain
Property chains arise where the sale of a property is reliant on the seller purchasing another property at the same time. This can happen numerous times within a property chain and the various properties involved are often described as ‘links’.
Chains can be as small as just two properties or can stretch to multiple properties and parties. Alternatively, you can find a no-chain property where the buyer has nothing to sell and the seller is simply selling the property, with no onward purchase involved. As a rule of thumb, the longer the property chain, the more likely you are to run into potential chain issues due to the increased number of parties and properties involved.
Are property chain problems a big deal?
When it comes to buying or selling a residential property, the last thing you need is the added stress and uncertainty caused by a broken or problematic property chain. A property chain is commonly used to describe the link between all of the properties involved in the transaction, starting from the buyer at the very bottom to the seller at the top. Problems in the chain can cause delays, additional costs and even failed transactions. In this article, we will look at the problems that can be caused by a property chain and how to avoid these issues.
Common property chain problems
According to Which, 21% of failed house sales in the UK are caused by buyers being unable to sell their home. It is also estimated that one in three house sales fall through in the UK. It is therefore important to consider why property chain issues occur and how to minimise the risks of being affected by one.
Property chain problems include issues such as failed mortgage applications, issues with the legal conveyancing process and personal circumstances of the parties involved. It is therefore worth exploring the most common issues to understand why they occur and how we can avoid them.
Failed mortgage application
Toughening of the rules in both 2014 and 2017 relating to mortgages have caused an increasing number of property transactions to fall through. Mortgage lenders require buyers to show evidence that they can afford their repayments. Additionally, lenders require buyers to provide evidence up front to show that they have their deposit available and also confirm how they have accrued those funds. Buyers will often proceed to offer on a property with just a ’mortgage in principal’ available, however, this is not a guarantee that the lender will provide them with a mortgage.
After a buyer has had their offer accepted, they will then proceed to a full mortgage application at which point the lender can reject the application if they buyer cannot satisfy their affordability criteria. Often, mortgage applications are submitted after the legal conveyancing has started and any rejection from a lender will ultimately cause the buyer to withdraw from the purchase.
Conveyancing issues
The legal conveyancing process generally only commences once an offer has been accepted. It involves the buyer’s solicitor reviewing the legal title to the property along with searches to ensure that the property is in order and has no significant issues.Once the buyer’s solicitor has been instructed and reviews the legal title, they may then notice a defect with the property which may be unacceptable to the lender or the buyer or both.
Additionally, where the buyer is obtaining a mortgage, lenders have introduced tougher regulations in recent years which requires conveyancers to ensure the property meets certain standards. If these standards are not met, the lender may ultimately decide not to give the buyer a mortgage.
A poor survey report on the property can also highlight significant problems with a property which can ultimately lead to the buyer deciding to pull out if no resolution can be reached.
Gazumping
The seller accepts an offer from a prospective buyer and both parties begin work on the transaction. After this offer is accepted, the seller receives a higher offer from a third party and accepts it, leaving the original buyer without a property to purchase and potentially jeopardizing their own sale. This is what is known as ‘gazumping’. A Which report found that 19% of failed transactions were caused by gazumping.
Gazundering
In contrast, ‘gazundering’ occurs where the buyer puts in an offer which is accepted by the seller but at the very last minute and just before exchange of contracts, they withdraw their original offer and submit a reduced offer. In this scenario, buyers often cite issues thrown up by a survey report or issues with the state and condition of the property as the reason for the reduction in their offer.
Buyers in this situation are relying on the fact that the transaction is so far advanced, often months, that the seller will have no choice but to accept their new offer to keep the transaction alive. Sellers are under no obligation to accept the reduced offer, but they will often have to consider how rejecting the offer and putting the property back on the market could affect their onward purchase and the rest of the chain.
Change of mind
In England and Wales, neither party is legally bound to buy or sell until the formal exchange of contracts. Exchange usually happens towards the end of the transaction and can be several months after the offer is first accepted. This means that up until exchange of contracts, there is no penalty if a party to the transaction simply changes their mind about the property or finds an alternative property that they wish to pursue instead.
Personal circumstances
Often it is a change in a person’s personal circumstances that can cause issues. For example, things such as illness, death, loss of employment and separation can lead to one party from the transaction withdrawing and potentially causing a domino effect for the rest of the chain.
How to avoid property chain issues
With the plethora of issues that can arise within a property chain, this section seeks to advise on the best way to avoid any issues with your own chain.
Choose a chain-free buyer
Arguably the most effective way of minimising the risk of property chain issues is choosing a chain-free buyer. A chain-free buyer is a party who has nothing to sell in order to buy your property. Alternatively, if you are buying a property then you can search for a property that is at the end of the chain, which is where the Seller is simply selling the property and not buying a new property at the same time. These types of transactions tend to proceed smoothly as there are only two or three parties who can influence the chain.
Sell your property and rent while you look for a new one
If you are in a position where you can move into temporary or rented accommodation upon the sale of your property then this is also highly effective. Doing so can remove the need for a property chain and can allow you to make an offer on a property without being tied to selling your current home. This will often make you a more attractive option to a Seller who is considering offers on the property.
Prioritise chain-free properties
You can also look at maximising efficiency by opting to purchase a chain-free property. This is where the seller of the property that you are looking to buy does not need to buy another property and they are simply selling the property. This is hugely beneficial as you are not reliant on the Seller’s onward purchase being ready and having to wait for any delays caused on that part of the chain. As soon as your purchase is ready (and any sale if you have one) then you can look to exchange and complete in a short space of time and do not have to wait for a whole property chain to be ready.
Agree on a moving date
Although nothing is legally binding until exchange of contracts, parties can agree to work towards specific completion timeframes and have this included within the memorandum of sale issued by the estate agent. Including a timeframe can be beneficial as it will put an emphasis on all parties working efficiently towards this date and can speed up the process.
Get your finances in place
Although nothing is legally binding until exchange of contracts, parties can agree to work towards specific completion timeframes and have this included within the memorandum of sale issued by the estate agent. Including a timeframe can be beneficial as it will put an emphasis on all parties working efficiently towards this date and can speed up the process.
Use experienced conveyancing solicitors
It is vitally important that you choose the right conveyancer. Opting for the cheapest solicitor is not always the best as this can lead to delays. Choosing a local experienced solicitor is advisable as they will have invaluable knowledge of the local area and will be on hand to guide you through the process. Local solicitors will have good working relationships with local estate agents and other local law firms which will make the conveyancing process as smooth as possible.
How can Goughs help?
Here at Goughs, we have a highly experienced team of conveyancers who can support and guide you through the process and navigate any challenges faced throughout. The team at Goughs have a detailed knowledge of the local area and you will have the support and guidance of the same conveyancer throughout your transaction.
