The dreaded Housing chain
April 21, 2010
There is one phrase guaranteed to strike fear into the heart of anyone trying to sell a house: the broken chain.
Put simply, a chain is a line of buyers and sellers involved simultaneously in property transactions that are linked to each other. If one transaction falls through or is delayed, the chain breaks and the effects are felt up and down the line.
For example, if you are waiting for a buyer to complete the purchase of your house before you complete the purchase of your new house, and your buyer pulls out, you may have to pull out, which could cause problems for the vendor of your new property. And so on. The result is a grim mix of financial and psychological angst.
It’s a common problem. Government figures estimate one in three property transactions in England and Wales falls through, while a survey for trade event the Homebuyers Show found that 36% of people feared getting stuck in a chain more than any other aspect of moving house. It’s an expensive problem too, given that the surveyor, estate agent and legal fees involved in buying property are non-refundable.
What breaks a chain?
Most deals fail because of tight deadlines for paperwork being missed or finance falling through at the last minute.
The buyer can simply withdraw his or her offer. Until contracts are exchanged, the buyer is under no legal obligation to buy the home and does not have to pay for any of the costs that you as the seller may have incurred.
Another common reason is that the survey – currently undertaken late on in the process – reveals some previously unknown problem with the property.
The gazunderer is back. Gazundering occurs where a potential buyer reduces their offer at the very last minute before contracts are exchanged.
The National Association of Estate Agents has warned that this phenomenon is rising as the UK housing market cools. Increased knowledge of property prices and a glut of properties for sale means buyers are more frequently springing a nasty shock on sellers and risking a lower offer.
Ironically, gazundering by first-time buyers whose ace card is that they have no chain behind them is also contributing to the increase. It is not illegal but it is unethical.
If this happens before contracts are exchanged it is up to the seller to decide whether or not to accept the lower offer. Once contracts have been exchanged the buyer is legally committed to paying the price stated in the contract. They can still pull out, but will forfeit the 10% deposit they paid when contracts were exchanged.
The seller may accept an offer for their house and then inform the buyer that they have been offered a higher price by someone else. This is known as ‘gazumping’.
There may be a delay in the lender making a formal mortgage offer to the buyer. Until the mortgage offer is made, contracts cannot be exchanged.
How can I avoid getting caught in a chain
There are a number of steps you can take to minimise the risk.
Avoid chains in the first place. Find out the status of potential buyers and decline their offer if they are stuck in a chain.
Find out the status of the people you are buying from too as chains can break either way.
To avoid becoming the weakest link yourself, have your mortgage offer in place before you start making offers.
If necessary, arrange for a bridging loan. This is a short-term loan which covers any financial shortfall and smooths the process. It can usually be arranged very quickly and will typically charge interest of 1.5%-2% a month.
This can provide the means to allow you to buy a new property before you have actually sold your existing one. It is an expensive way of borrowing money however, especially if you don’t know exactly when you’ll be paying it back.’
Be prepared to lower your asking price. Most property is sold within three months of being put on the market. If your home is still for sale after this period, your asking price may have fallen out of line with local levels. Check the prices of as many comparable properties as you can and adjust accordingly.
.Some sellers do this by selling their property and opting for rented accommodation whilst they search for their new home.
House sale instructions drop due to lack of buyer interest
April 8, 2010
The UK housing market experienced a shift in the balance between supply and demand in February, with new instructions outpacing buyer interest for the second consecutive month.
According to the Royal Institution of Chartered Surveyors’ (RICS) latest housing market survey, a net balance of 15% of surveyors reported a rise, rather than a fall, in new instructions, compared with a negative balance of 5% in January.
Surveyors are still reporting house price gains in most regions but the RICS points out that “net balances are a little less positive than they were”.
The North, Yorkshire and Humberside, Wales and the West Midlands are the exceptions, with house price falls still prevalent.
In terms of price expectations, February’s balance remains in positive territory although at its lowest since July 2009.
However the magnitude of the gains going forward is likely to continue to ease reflecting the fact that new supply coming onto the market is starting to outstrip fresh demand.
Customers face difficulties in securing loans
April 8, 2010
Consumers looking to take out a loan could find that it gets more difficult as banks become more selective about who they will give money to.
The price comparison site reported that, although it has seen the number of people searching for a loan increasing by 20 per cent since the end of last year, in the same period, the British Banker’s Association has reported the number of loans had fallen by 28 per cent.
Many banks have restricted their lending to existing customers and the supermarkets, which often have the best levels of interest, will increasingly only accept applications from people with good credit histories.
The most important thing to remember is that the APRs quoted by lenders are “typical” and the rate you see may not be the rate you are accepted at.
For those who rely on overdrafts, reports that only two of the top eight banks have changed their charging system in the last year to make them fairer for consumers.
