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Buying a property as part of a chain means that your property purchase is subject to the seller being able to complete their onward purchase.
A “property chain” is the situation when buyers and sellers are linked together during property sales.
Each buyer, or, seller is reliant on the other buyer and sellers in the chain performing, in order to conclude their transaction. This is fairly typical with the re-sale property market where sellers are moving into a new property and they are reliant on selling their home to buy a new one.
A property chain can extensively prolong a property purchase as there are so many factors involved with each transaction that could result in a sale, or, purchase falling through, including:
Property chains can be five, or, six parties and potentially even more, which adds to the complexity of the chain and increases the risk of a chain breaking, causing the collapse of all of the property sales and purchases.
Property chains will inevitably prolong the purchase process as all of the buyers and sellers need to agree contracts, undertake surveys, arrange financing, wait for searches, organise furniture removals, which can be very frustrating, especially for buy-to-let property investors who want to undertake refurbishment work and let the property to generate an income as soon as possible.
If you consider all of the things that could go possibly wrong during a property transaction, then multiply the chances of just one of these things happening by the number of parties in the chain, the risk of your purchase falling through is exacerbated. Just one weak leak could cause the collapse of the whole chain, but is part of the re-sale property market.
Even if your purchase does not complete, you may still have to pay for legal fees, property searches and surveys, which can cost thousands of pounds, in addition to wasting a lot of your time viewing properties and completing your due diligence.
Many purchases were put on hold, or, delayed as surveyors could not access properties during lockdown and many solicitors and mortgage advisors were working from home for the first time, impacting on the speed of getting their work done. The rumours about the Stamp Duty Land Tax Holiday also caused delays with completions, as many buyers stood to benefit from thousands of pounds in savings on tax. This caused a substantial backlog of transactions.
The property market experienced a mini-boom in May 2020 after the first lockdown as of the pent up demand and lack of supply, adding to the pressure caused by the backlog, with solicitors, surveyors, mortgage lenders, removal companies struggling to keep up with demand, adding to the average time to complete a property transaction, causing failed sales as buyer and seller circumstances change during the transaction.
As the undersupply of properties is not meeting the levels of demand, prices are rapidly increasing, with buyers paying over the asking price in some cases. This can also impact on property chains if the surveyor undertaking the valuation, or, the desk top valuation undertaken by the mortgage lender does not match the purchase price agreed.
With the re-sale property market becoming increasingly difficult for buy-to-let property investors to secure a good property with the confidence that their purchase will be successful, more property investors are buying property off-plan, during construction, or, a recently completed property.
The property developer will not be buying another property, so the chain is limited to just two, avoiding the risk of paying thousands of pounds for an aborted property purchase.
Prices are typically fixed, so there is no risk of being outbid by another buyer. When you agree to buy an off-plan property, you pay a small reservation fee, providing you with exclusivity for a month for you to exchange contracts on your selected property.
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