How to deal with property chain problems
Buying a new home is exciting, but so much can go wrong before completion. Here's why you need a plan B if the deal falls through and how you can minimise any financial loss.
If you’re buying a new home, chances are your seller is also buying another property to move to. Unless you’re a first-time buyer, you may even be selling your current home as well.
This is called a property chain – where successfully buying a home is dependent on the relative success of another transaction. If one deal fails, the whole chain could collapse – losing you money in the process.
Why would the chain break?
Nearly a third of house sales collapsed last month, according to property buying company Quick Move Now, mostly because buyers have struggled to raise the finance they need from their mortgage lender. Other reasons could be if the seller can’t find another property to move to, if either party are made redundant or if they simply get cold feet and pull out.
Gazumping (where a seller finds a buyer willing to pay more) and gazundering (when a buyer reduces their offer at the last minute) can play a part too.
You might also see a deal fail if something comes to light in a home survey, such as repairs that will cost a buyer more money. If any squabble erupts over who pays for the repair, the whole thing could flop.
What you stand to lose
It can be incredibly frustrating, not to mention financially crippling, if a deal breaks down. You lose money paid for solicitors’ fees and a survey, which if you chose the full homebuyer's report could cost hundreds, if not thousands of pounds. You may also have already paid a non-refundable mortgage arrangement fee or booking fee.
If you’re the one that decides to pull out of the deal, you'll lose your deposit, which is likely to be a sizeable sum, if you do so after contracts have been exchanged.
Can I prevent the chain from breaking?
Sadly no, but you can try and limit the chances of it happening. Patience, honesty and organisation should be your new best friends. If you’re organised the process should be quicker, giving less opportunity for upset. Be honest about your finances from the outset, so in theory there should be no problem when it comes to securing a mortgage from your lender. Always house hunt with a mortgage in principle too, so you’re only looking at homes you’re likely to get the finance for.
If you’re selling a property, be fair with the price and honest about the condition – don’t try to mask any hidden problems that will come up later in a survey.
A final way to mitigate disaster is to try and avoid a chain altogether, but this may not be possible if you've set your heart on a particular home.
How can I turn it around?
If the worst happens, it’s not necessarily ‘game over’. It’s upsetting if the seller withdraws and you lose the property you’d already mentally moved into, but be practical and start looking at other similar properties in the area. Contact local estate agents, as they may know of a property that hasn’t even been advertised yet.
If you can't get a large enough mortgage for the home you want, try renegotiating a lower offer with the seller but be prepared for a ‘no’.
If you’re selling and the buyer drops out, keep solicitors and everyone in the chain informed while you search for another buyer. Consider lowering your asking price too, particularly if the price hovers near one of the Stamp Duty thresholds.
Find out why someone in the chain has pulled out – if it’s a money issue, it’s possible for everyone in the chain to agree to a reduced sale price. It’s a long shot, but it has been known to pay off in the past.
There are companies that will guarantee a property sale in the event of a chain breaking. However, be aware that the offer made on the property will be below its market value. You can also consider bridging loans, where you borrow some money against your current home, but this can be an expensive way to borrow and you should generally look at it as a last resort.