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Losing your place in a property chain can be devastating. The more competitive the housing market in your target location, the higher the likelihood of facing this grim eventuality.
Over the course of the past year, average UK house prices have increased by a whopping 10.6%. As things stand today, the average UK home is now valued at around £264,000.
None of which has deterred movers and first-time buyers from tracking down and placing bids on their dream homes. Quite the opposite, as with further price growth on the cards (and interest rate hikes to come), buying a home in the UK is not getting any cheaper.
When dealing with such ferocious competition, the prospect of facing a broken property chain is real. The question is – is there anything you can do to safeguard yourself from the nightmare of a property chain that breaks down?
What is a Property Chain?
The term ‘property chain’ applies when a homebuyer is reliant on a second separate transaction to allow their property purchase to go through. For example, when you are looking to buy a new home and invest your money in this new home but cannot make the purchase until your current property has sold, you are part of the property chain.
Likewise, the buyer interested in purchasing your current home may only be able to complete the purchase when their own home sells, and so on. The longer the property chain, the higher the likelihood of facing a chain break scenario.
This is because if even one prospective buyer pulls out, the knock-on effect can extend a long way through the chain. Not only do you need to successfully sell for the best price for your home, but you need to hope that the buyer sells their home, and the buyer of their home sells their home, etc.
Common Causes for Broken Property Chains
A property chain breaks happen for a variety of reasons, though the most common by far are as follows:
1) Transaction Times Too Long
From mortgage application to sale completion, the average property transaction in the UK takes around three months. During which, it is perfectly possible that another competing bidder could beat you to the punch. If the seller of your target property is in a hurry, they may prioritize any bidder who is able to pay them faster.
2) Buyer Pulls Out
Another common reason for property chains falling through is the prospective buyer of a property pulling out. It could be that the individual who planned to purchase your home was unable to secure the funds needed, or that they found a more suitable property elsewhere. They could also simply change their mind at any time and pull out, leaving you in a difficult position.
3) Issues with Funds
Speaking of which, mortgage providers are perfectly entitled to withdraw their support at any time, prior to the funds being issued. Should any problems or discrepancies with the borrower’s application be detected, the bank’s offer may be withdrawn, preventing the transaction from going ahead.
Bridging Loans to Prevent Broken Property Chains
The longer the property chain and the lengthier the transaction time, the higher the likelihood of its breakage; this is where fast-access funding like bridging loans can help, which effectively turns the bidder into a cash buyer.
With bridging finance, the funds needed to purchase your next home are secured against your current home. The money can be accessed in a matter of days, in order to purchase your next home outright and beat all competing bidders to the punch.
Repaid when the sale of your current home is complete, bridging finance can be a highly flexible and affordable short-term facility; typically charged at a monthly interest rate of less than 0.5%, making it easy and affordable to avoid a broken property chain.
If time is a factor and you would prefer not to let your dream home slip through your fingers, bridging finance could be the answer.
What Else Can I do to stop my Chain from Breaking?
Along with accelerating the transaction with a bridging loan, there are other steps that can be taken to reduce the risk of a broken property chain:
- Determine how you will fund the property purchase and arrange the finance you need as far in advance as possible. Anything you can do to streamline and speed up the transaction will help.
- Maintain active and open communication with all parties involved at all times, including your premier property lawyer, your estate agent, and the seller of the property.
- Consult with an independent broker at the earliest possible stage, in order to discuss the most appropriate financial products available to suit your requirements and your budget.
For extra information on any of the above or to discuss the benefits of bridging finance in more detail, Reach out to the member of the team at UK Property Finance today.
