Potential property ‘problem’ – how about ‘breaking the chain’?

‘The chain is how long?!’ he exclaimed…

Whether it’s buying or selling a property, being stuck ‘in a chain’ – that is a number of house sales that are all linked together – can be stressful & expensive; it can even prevent you from moving!

20171113_110012When the sale becomes ‘shaky’ one person drops out, then the whole chain can collapse – you & everyone else in it can be back to square one. I have been involved, just recently, with a client’s move & they have made the decision to break (…away from) the chain…partly in response to the market conditions & concentrate their efforts upon selling first!

Stop press – just been reading here about ‘…Nested, the chain-breaking estate agency that helps home movers buy their next house before they sold their current home, has raised £36m in a new funding round to expand its business’.

How do I break the housing chain?

Let’s look at some of the advantages of breaking the housing chain – fortunately, there are things you can do to break housing chains but they should not be taken likely as they will come at a price.

Positive reasons for breaking the housing chain might be:

  • it makes house buying far more predictable & you are less likely to affected by events beyond your control. A lot of people moving home will have experienced how frustrating it is (& costly) to lose the house you want, because someone you have never met can’t arrange a mortgage, a survey or a removal company in time
  • it puts you in a very strong position when buying & you are for more likely to achieve an advantageous deal that suits you & your circumstances

In my experience, over the years, many sellers (& their estate agents!) would prefer to take a buyer who has the cash in the bank than have the risk of a sale that is dependent upon finding a third party to buy the property. There is also the added attraction (well peace of mind certainly) that you are less likely to be gazumped – by this I mean that if you put in a fair offer, the seller is unlikely to take another if it means entering in to a property chain.

20171106_113317There are three main ways to break the housing chain:

  • selling (that is completing on your sale) before you buy
  • taking out a bridging loan
  • not selling, but increasing the mortgage on an existing property to use as deposit

Selling before you find a house to buy

If anyone has actually personally been involved in a chain – perhaps been gazumped or felt that they’ve undersold – they will recognize that stressful feeling! There can be an appeal to minimize the stress, just sell regardless & move straight into rented or temporary accommodation. This way you remain in control of the sale of your own house – you avoid being dictated to; having to make a quick deal & selling perhaps below market value.

When you are in the strongest negotiating position – sold & renting – you can not only possibly dictate the time frame but also, as you are in the strongest negotiating position, get a better price when you buy another property if you find a seller who is also keen to move quickly.

The other positive is that it is much easier to stay within budget – you will know exactly how much you can spend because you’ll have the money from your sale already in the bank – buying your next home won’t be dependent on you achieving the expected price on your existing one.

Currently – in a buyers market – if prices are continuing to remain static or even falling, then houses become more affordable the longer you wait.

IMG_20171004_102548_530However do remember …

If you sell first, expecting to be able to buy quickly afterwards, you may be disappointed & instead have to rent for a time, which can prove very costly – important to keep abreast with market conditions, monitor all the market reports.

If prices are rising fast, by the time you’ve sold your house & sorted out somewhere to rent, a new house will be much less affordable.

Bridging loans

In the past one would have uttered this subject in hushed tones…there’s no doubting that applying for a bridging loan is risky, not cheap & only applicable in very specific situations…

Currently the housing market is steady – more of a buyer’s market – but this could quickly change. Funding criteria is still challenging for many buyers, delaying sales. Particularly since the recent recession lending rules & criteria have tightened – for those self employed, the over-55s & with ‘buy-to-let’ lending. However, there are a number of short term or bridging lenders, all with the aim of ‘chain break’ lending – just be wary, the rates might be competitive but the fees vary wildly & ofcourse always seek out the professionals for any independent financial advice!

However there are some important scenarios to consider:-

  • if you have found that dream home that you really don’t want to miss & you need to put down a deposit for the mortgage then it might just be worth temporarily applying for a short-term loan secured against your property & paying it off once you sell it – which breaks you out of the chain!
  • a positive factor is that to the seller/seller’s agent (as these types of loans are expensive) this will clearly demonstrate your seriousness & commitment to purchase.
  • 20170721_110049if you are seriously considering this way forward, the general advice is only to commit for a bridging loan once you have exchanged contracts.
  • if you take out a bridging loan before exchanging, are then gazumped, you will have wasted a lot of money & if you are unable to sell your house very soon after, you may struggle to pay back the loan as the interest payments escalate.
  • it would be advisable to have your property not just on the market but also achieving some interest, before taking out a bridging loan 
  • if you found the interest shown in your property is not good you may be under pressure to accept a lower price for the property you’re selling to pay off the loan as soon as possible
  • if property prices are falling, you may be left without the means to pay off the loan; the advice is only apply for a bridging loan if you hold most of the equity in your current property.

Extending the mortgage on your existing home

An alternative way to break a chain is by extending the mortgage on your existing home & using that money as a deposit for the mortgage on the new property, giving you potentially the option to have a larger mortgage than you would otherwise need.

You can then rent out your old home using the rental income to pay the mortgage on that property; depending on the property’s ‘potential’ this can be a good investment. This transaction is known in the trade as “let to buy” – you are letting out your old property to pay for a mortgage that helps you buy a new one. At a later stage, in favourable market conditions. you then have the option to sell on your old home at a time to suit you.

With any of these options we must add that it is always best to seek qualified advice particularly from a respected independent financial advisor & if requested we would be happy to give you some suggestions.

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To lighten the mood somewhat…I spotted these (tongue firmly in cheek) guidelines for applying for a loan (K Ray).

‘Be honest on your application form. If you say you are a High Court Judge but have a Mohican haircut, live in a rented bed-sit & confess to being on probation, then there is a chance your pretence might be rumbled…’

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