There are many ways to buy a house and many different types of properties to buy. For example, you could buy a leasehold or freehold property. You could buy a flat, house, houseboat, or static caravan, or you could even buy land and build a home yourself. There are different types of mortgages you can use, or you could buy the house outright.
This all points to the complexity of home ownership. This complexity has not stopped the rise in annual house prices. In February 2022, house prices had risen by 10.9% in the UK. This buying frenzy has happened despite a gloomy economic outlook in the UK. The Bank of England has now warned of an incoming recession at the end of the year.
This recession may mean that many property chains will fall through. Property chains link two or more properties together in the buying and selling of property. For example, a person may need to sell their house in order to pay for a new property. In this case, the two house sales are linked in a property chain, as one cannot be completed without the other.
This article will explore in further detail what property chains are and how they may be affected in the coming future.
What is a property chain?
A property chain links together a group of buyers and sellers in a chain. A chain of sequences has to happen when buying a house in order for there to be a successful sale. There may be multiple property transactions that have to be finalised in order to complete a property chain.
For example, a first-time buyer may look at buying a property. However, the property sale may be conditional. There may be a condition that it can only occur if the other party’s purchase of their next property goes through. This means they are all linked together in a property chain. If one link in that chain breaks down, such as a buyer or seller pulling out, the whole property chain breaks down.
This is why buying a house on a property chain is risky and time-consuming. It is also why buying chain-free properties is simpler and more beneficial.
What are the risks of buying using a property chain?
Typically as there are more steps involved in the buying process, it will take a longer time to buy a property in a chain. You may have to wait for a long-time for the other party to complete their own property transaction first. You may also lose money if the other party fails to buy their new property or decide against selling.
You may have already paid for expensive home-buying services that are not recoverable if the other party in the chain pulls out. This could include surveys, solicitor fees, and valuation estimates.
It is risky to buy this way because so many factors in the buying process can break the property chain. For example, one party could be rejected when finalising their mortgage agreement, someone could lose their job, meaning buying a property is not financially feasible, and a multitude of other factors.
The more people involved in a property chain, the more chance there is that the property chain will be broken. Unsurprisingly buying a property or selling a property in a property chain is more to lead to failed property sales.
Can I avoid property chains?
To avoid any complications, it is better to try and buy chain free or sell to chain-free buyers. When selling, it may be better to sell to a first-time buyer as you do not need to wait on them to sell their house first. If multiple offers are on the table, try to sell to a chain-free buyer if possible.
If you, as a buyer, are struggling to buy because you aren’t chain-free, it may be worth selling your property separately. For instance, you could move in with family or rent for a short time until you sell your property. When you have done this, you can approach sellers as a chain-free buyer. In turn, you, as a buyer, should try and buy property without an upward chain. This means your purchase does not rely on the success of the seller’s purchase.
Another way to get a chain-free property is to buy a new build property. New builds do not have any upward chain, so they are a good choice for buyers. Also, many new-build property developers offer part exchange on your old home. This helps to simplify your end of the property chain. However, much like with cars, part exchange contracts tend to undervalue what you are selling.
How do I prevent a break in a property chain?
When chain free is not an option, there are a number of steps you can take to prevent a chain from breaking. For example, you should maintain friendly and regular communication with all parties involved in the chain. Try and build rapport with each party. This will make it harder for them to let you down as they will not want to let you down on a personal level. You should also keep in touch with your estate agent and solicitor to ensure they are keeping on top of the deal.
You may have to re-negotiate prices if someone pulls out of the chain. For example, the economic climate may change, or someone’s personal finances may be negatively affected. This may mean a purchase becomes financially unviable. So, to prevent a sale from falling through, you may be willing to lower your selling price. In turn, you may be able to convince the seller on the onward chain to lower their price to negate this. You may not be able to get the onward chain to agree. However, if you are sure their house is the right property for you, you may be willing to pay the extra amount out of your own pocket.
If someone completely pulls out of buying your property, you may have to take drastic action to salvage the deal. For example, you could use a quick-sell house-buying company. They will swiftly buy your property but at a reduced price. So, unless you convince the onward chain to lower their price as well, the difference comes out of your own pocket.
How will a future recession affect the housing market?
It looks likely that the UK is heading towards a recession. The effects of Covid lockdowns and rising fuel prices have ravaged the UK economy like much of the world. Despite the uncertainty of Covid, there was a surge in property sales in 2021. However, it looks like that may be set to end this year.
The rise in living costs will likely drive an increase in repossessions as people will not be able to afford mortgage repayments. However, this will means there is a larger supply of buyers and using the rule of supply and demand will decrease house prices. There will also be less demand as fewer people will be able to afford deposits for mortgages.
A recession will also affect chain buying greatly. Not only will rising costs stretch budgets, but it will drive job losses as companies also struggle with rising costs. This will see an increase in buyers pulling out of a chain as they can no longer afford it. People looking to upgrade their homes by selling and buying may hold onto their more affordable homes until things stabilise. This will also lead to breakdowns in housing chains. Buyers may also pull out when the property market drops, as they may feel it is no longer worth what they are paying for it.
However, chain-free purchasers, such as first-time buyers, may benefit from a housing market crash. You could hold off until house prices decline, then buy at a reduced cost. You will also typically get lower interest rates on mortgages during a recession. However, lenders become much more strict during a recession as there is an enhanced risk for lenders.
What does chain free mean: Summary
There are numerous types of properties a person can buy, along with several purchasing methods. One of the quickest and simplest methods is to buy chain-free property. A chain-free buyer has the finances in place to buy a house without having to sell their old property first.
It is best to buy completely chain-free. If this is not possible, the smaller the chain, the better, as the chance of failure increases as more people become involved. Also, if someone on the chain pulls out, you may lose money on fees you have already paid.