If you have ever wondered what a property chain is, it is a series of housing transactions which are dependent on one another.
Typically, a property chain begins with a person who is buying a property but is not selling one. This is usually a first-time buyer. However, they could also be a landlord acquiring a buy-to-let property or a someone buying a second home.
The chain will end with someone selling a house but not buying. A good example of this is a retiree moving in with family or a landlord liquidating their property assets.
In between, there will be a variable number of people who are both buying and selling a property, often referred to as links.
How does a property chain form?
Typically, when someone is buying a house in the UK, they will be selling their previous house in order to part-pay for their new property.
This allows them to buy a more expensive house than they would be able to if they used a mortgage alone. By freeing up the capital in their old property they will be able to put down a much larger deposit.
The problem with this is that these buyers are dependent on the sale of their old property for their new transaction to proceed.
If you are in this situation, your property transaction almost certainly requires three parties: The person you are selling your old house to, you, and the person you are buying your new house from.
Given that most people buying property in the UK are also selling property, chains will often have more members than our hypothetical example here.
How do property chains work?
For a property chain to proceed all the parties involved must complete all the vital steps to buy and sell their properties as required.
If a buyer or a seller does not complete an essential step in time this could hold up the entire property transaction for everyone.
As your sale or purchase forms part of a property chain, there will typically be a period when the chain is incomplete. This means that one or more parties in the chain have not found a buyer, or a property yet, and are still marketing and searching.
You can use this time to get ahead on the conveyancing process, organise searches and prepare your property’s documents.
After all the parties have found a buyer and a new property, the chain is ready to proceed.
The last parties to join the chain should hurry to complete their conveyancing paperwork, as everyone else will want to exchange contracts and arrive at completion as soon as possible.
It is best to organise exchanging contracts as soon as everyone has completed all their conveyancing and any negotiations. This might require a little communication.
How does the exchange work when in a chain?
When all parties are ready, the legal step of contracts being exchanged can begin.
The first party, who is buying but not selling, will have their conveyancer contact the next legal conveyancer in the chain, confirm they have a signed contract of sale, and then send the deposit over.
They will give this company a release time, by which they must confirm the exchange. The second legal company will then contact their client’s seller’s conveyancing firm, check the contract of sale, and then send on the deposit.
This continues until the conveyancer at the top of the chain is reached, after which they will communicate confirmation back down the chain.
This must reach the first conveyancing company by the release time, otherwise, the exchange process must be restarted on the next working day.
It is usual for the deposit from the first property to be used to pay for the next, and so on. While additions may be necessary, depending on the prices of the further properties in the chain, it is common for the initial deposit to make up most of the deposit for all parties.
How does completion work when in a property chain?
Prior to the exchange of contracts, all parties in the chain will agree on a completion day.
It is best practice to have this date written into everyone’s contracts of sale, as it ensures everyone will be ready to complete the transaction on the same day.
Being ready for completion day is extremely important as this is when buyers pay the full balance for their property and take possession of them.
When in a chain, completion day will start with the first buyer transferring their funds to their seller’s conveyancer, who will send over the necessary documents and authorise the release of the keys.
Once this sale has completed, the second conveyancer in the chain transfers the funds for their client’s house purchase to their seller and completes the purchase.
This process will proceed until all the separate property transactions are complete, and the final party has sold their property.
Typically, a transaction needs to complete by 5.30 pm. If it does not, the process will continue on the next working day.
How long is the typical property chain?
Nobody knows!
The number of properties in a chain can vary hugely, ranging from three properties to more than ten, but no official statistics have ever been collated.
Expert testimony across the industry indicates that chains of four or five properties might be the most common, but there is no hard evidence to back this up.
What people are certain about though is that a longer chain will take longer to complete and has more risk of house chain collapse.
What are the problems with property chains?
Property chains move at the speed of the slowest involved party. This means that if anyone in the chain suffers problems it brings the whole thing grinding to a stop.
Note that in addition to the parties actually buying and selling properties, the chain also includes input from estate agents, conveyancers, mortgage lenders and surveyors. This quickly adds up to dozens of people being involved in the transaction.
If one party does not sign something on time, misses an important message or does anything else to slow down the progress of the transaction, the whole chain can be delayed.
Even worse, if a party fails to secure finance, or decides not to proceed with the transaction, it can send the whole thing tumbling towards collapse.
How to keep a property chain moving?
There are a bunch of things you can do to help keep a property chain moving and reduce the chances of a house chain collapsing.
While this is theoretically the job of estate agents and conveyancers, there is a lot every link in the chain can do to help.
Communication is key. Talk regularly with the people in your chain and try to build a relationship with them. If you encounter something that you think could slow down your transaction be honest about it. Tell everyone as soon as possible so they can adjust their plans.
One of the other things you should talk about is timeframes. Everyone should know about any preferred exchange dates so they can all work towards the same date.
You should try your best to ensure that you have an experienced conveyancer and advise others in the chain if you think theirs might be causing unnecessary delays. A skilled conveyancing solicitor will provide the best service and will help to ensure that the chain runs as smoothly as possible.
It is also a good idea to ensure you are efficient. Filing out all the forms and returning all the documents on time is important to make things run on time. You should check in with your conveyancers regularly to ensure you do not miss anything.
Finally, if you can rent or move in with family you can essentially split the chain in two. If you can sell your house a few weeks or months before you buy your next property, it means you can essentially become the cash buyer at the start of the chain and means fewer people need to coordinate with each other.
What can cause a house chain to collapse?
House chain collapse is a serious worry when selling property. More than a third of all property transactions in the UK fail.
There are five main reasons a property chain can collapse:
- A buyer could have a financial problem, and not be able to secure enough money from a mortgage lender
- One of the parties decides they no longer want to proceed and pulls out of the transaction
- Problems are found in a search or survey, and the buyer no longer wishes to proceed
- Re-negotiations, surrounding the searches and survey or just in general, fail
- Unforeseen circumstances impact the chain. This can range from somebody within the chain becoming seriously ill to a house fire to a world-wide health scare such as the recent Coronavirus pandemic
How can you stop a property chain from collapsing?
If something does go wrong, and you find your chain falling apart there are a few things you can do to attempt to save your transaction.
This might involve compromising and convincing the other parties to do the same.
For example, if a mortgage offer is not as great as expected, you could find an offer being dropped. When this is the case, the vendor has to choose if they accept the offer or break the chain.
Alternatively, if the person selling you a property backs out, it can make sense to rent somewhere for a short time and continue selling your own house to your buyer.
If you are a person of means, you have another option too. If a house below yours in the chain is struggling to sell, you could buy this too and resell it later, or operate it as a buy-to-let. This will cost you a substantial amount of money but could ensure you can sell your house and can buy the property you are wanting to.
Finally, if your buyer does drop out at the very last minute you could turn to a cash house buying company. These businesses will not pay full price for your house, but you can still get a surprising amount of money, often around 75-85% of your property’s asking price.
How to avoid property chains?
Given the dangers that property chains pose and the difficulty of dealing with them, it can often be best to simply avoid them.
There are several methods you can use to minimize your exposure to chains.
First, you can screen the properties you are looking at and the buyers you are considering. By choosing a chain free buyer and looking for a property with no onward chain you can reduce the length of the chain to three, minimising any potential problems.
Second, you could consider moving out yourself and selling your property before you buy. This will make you a chain-free buyer yourself, which is a status you can use to your advantage when making an offer as you will appeal to most vendors.
A third option is looking at new build properties. These have no onward chains, for obvious reasons, and the developer may even offer a part exchange, buying your old property to speed up the process. Note that developers do not always offer the best deals as they want to be sure they do not make a loss on the re-sale of your part-exchanged property.
Summary
A property chain is formed when multiple property transactions are dependent on each other to proceed.
These chains can consist of a seller who is not buying, a buyer who is not selling, and a bunch of links who are both buying and selling.
Buying and selling a property as part of a chain can be painfully slow because in order to proceed past a step, everyone needs to have everything required ready to go at the same time. Coordination is key to ensuring a chain succeeds.
In addition, house chains can collapse. If something goes wrong above or below you in the chain your transaction can fall apart, at no fault of your own. While there are many ways to try and prevent this, they can all come at a cost. This could mean renting a property for a short while or selling your house for a smaller sum than you expected.
If you can sell or buy a property without being part of a chain, this can be a great way of reducing the overall stress of property chains. Not being part of a chain can speed up your transaction dramatically and substantially increase its chances of success.
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