The Chain

 

A chain is a line of buyers and sellers involved simultaneously in property transactions that are linked to each other. If one property transaction falls through or is delayed, the chain can break and the effects are felt up along the chain.

For example

If you are waiting for a buyer to complete the purchase of your property before you complete the purchase on your new property, and your buyer pulls out, you may have to pull out, which could cause problems for the vendor of your new property.

It is a very common problem in the UK. Recent Government figures estimate one in three property transactions in England and Wales fall through. It's an expensive problem too, given that the surveyor, estate agent and legal fees involved in buying property are non-refundable. There is insurance you can purchase to cover these fees should your chain break down.

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.


What can break a chain?

The chain breaking can happen due to a variety of reasons.

  • Most chains fail because of tight deadlines for paperwork being missed or finance falling through at.
  • The buyer can simply withdraw his or her offer. Until contracts are exchanged, the buyer is under no legal obligation to buy the property 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 and the buyer pulls out.
  • Gazundering occurs where a potential buyer reduces their offer at the very last minute before contracts are exchanged and the vendor refuses the lower offer. The NAEA has warned that Gazundering is rising as the UK housing market slows. Increased knowledge of property prices and a huge selection of properties for sale means buyers are more frequently springing a nasty shock on sellers and offering lower offers. 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 vendor 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 property chain?

There are a number of steps you can take to minimise the risk of getting caught up in the chain.

  • 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.
  • Make sure you have all your finance in place. 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 smooth’s the process. It can usually be arranged very quickly and will typically charge interest of 1.5%-2% a month.
  • It is standard procedure to ask to see the necessary paperwork for the buyer below you in the chain to rule out any chance of a chain break.
  • You can reduce the amount of time involved in lenghty chains by shortening the time taken to complete.
  • You can sell your current property and go into rented accomodation whilst searching for your new property.
  • Keep communication channels open between all parties can ease things along, lower stress and reduce the risk of chains collapsing.


Are there any other ways to fix a broken chain?

As a last resort, you could try a company specialising in repairing broken property chains. These companies’ co-ordinate reductions in price all the way down the line to try to get things moving.