If you’re buying or selling a property, chances are you will be part of a chain. If one link in the chain was broken, it is likely that the other sales would also be affected, which could ultimately lead to the collapse of the whole chain.
As Stephen Clark, from bridging loan company Finbri, says, “Property chains are par for the course in the UK, but for a sale or purchase to go smoothly, all property transactions in the chain need to complete. Although chain breaks can be stressful, specialist bridging finance can help repair broken chains and enable successful completion.”
One in three property transactions in England and Wales fell through before completion in the final quarter of 2021, even though new instructions are up by more than a third (36%) year-on-year.
But what is a chain break, and what causes property transactions to fall through? We aim to find out in this article.
What Exactly is a Property Chain?
Simply put, a property chain is a collection of properties whose sales are linked in a chain-like arrangement.
It is a list of buyers and sellers linked together because each individual buys from someone else in the chain and sells to someone else. Someone at one end of the chain is only interested in purchasing (such as a first-time buyer), and someone on the opposite end is selling rather than buying.
What is a Property Chain Break?
A property ‘chain break’ occurs when three or more interdependent property transactions are in a chain, and one transaction falls through.
When a chain break occurs, anyone relying on selling or purchasing a property in the chain will be affected and, as a result, may lose money and face having to either relist their property or find a new one.
What Does “Chain Free” Mean?
Chain free, or ‘no chain,’ indicates that the vendor does not need to acquire another house while selling their old one, and the purchaser does not rely on selling their previous property to complete the sale of their new one.
A property can be chain-free for a variety of reasons, including:
- The vendor has already moved into a new property, and the purchasers are first-time buyers.
- The vendor is selling a second home or an inheritance and does not require a new home.
- A firm is selling the house, for example, following repossession.
What are the Most Common Causes of Chain Breaks?
A simple lack of finance can cause a property chain to fail in rare situations. According to data, approximately one-third of all UK property chains collapse because borrowers could not obtain the appropriate financing through their mortgage provider. In theory, all financial issues should be settled by the relative parties before making an offer on a property, but unfortunately, not everyone follows these standards.
Gazumping occurs when a seller accepts an offer from a possible buyer only to take a more significant offer from someone else. Gazumping frequently occurs at the last minute, causing the property chain to break.
A survey conducted in April 2022 found that 31% of people in England and Wales who bought a property said they had been gazumped at least once since 2012. In London, this number rose to 51%.
Gazundering is essentially the inverse of gazumping. In such cases, the buyer abruptly lowers their initial offer on a property at the last minute. More frequently, this occurs right before both sides are scheduled to exchange, which can disrupt the buying and selling transaction. If the property seller cannot accept the lesser offer and the buyer refuses to change their mind, the property chain may fail.
Issues arising from property surveys are another primary reason for a property chain collapse. Suppose unforeseen difficulties are discovered in a property survey, such as severe structural, roof, or other essential repairs, buyers may withdraw from the transaction.
Fixing the Chain with Bridging Finance
When a chain break has occurred, bridging finance can help repair the ‘break’ and prevent a collapse in the whole chain. Bridging finance can give you the time to sell your existing property without missing out on the property you already intended to buy.
What is Bridging Finance?
Bridging finance is a type of short-term finance that will provide you with a loan typically secured against the property that you wish to purchase. You will have between 1-24 months to sell your existing property and then pay back the loan once the sale is complete.
You can also use bridging finance if you have found a property you would like to move into but have not even started the process of selling your property. Also, having a buyer willing to ‘pay in cash’ may make the transaction more appealing and reassuring for the seller, making it easier to negotiate a lower purchase price.