FOOL'S EYE VIEW
How To Avoid Housing Chain Collapses

By Alison Hunt (TMFAlly)
January 25, 2005

There can't be many of us who haven't either experienced first-hand, or through friends and family, the misery of a housing chain collapse. Statistics state that an amazing one in three chains are likely to break down; with 17% of people claiming that gazumping and chain collapse were the most stressful problems faced when moving house.

Housing chains form because someone buying one house is generally selling another one. Whoever buys their house is usually selling one too, and so on. All of these people, due to their simultaneous buying and selling are forming the links in a  housing chain. And whether they like it or not, they are now reliant on each other for the success of their own purchase/sale. Housing chains must start somewhere of course. Typically they will begin with a First Time Buyer (FTB), who has no current house to sell.

Obviously, the longer a housing chain becomes, the longer it takes to complete; market conditions and interest rates may change within this extended time, and adversely affect the people involved. Problems occurring within the chain will firstly slow it down (chains only proceed at the rate of the slowest person) - extremely frustrating for those not directly involved.

But sometimes these problems can break the chain, as someone will pull out. This is when the real problems start, as new buyers and/or sellers must be found. Speed is of the essence here. If your buyer drops out, you could be at risk of losing the house you want to buy, if you can't line up another buyer for your house.

In addition to all the stress and time lost, collapsed chains are also an expensive business. If you've lost out on the house you were buying, not only do you have to waste time finding another, but you'll have to pay for another survey, more searches and your solicitor's fees for the work he did on the previous purchase. This can amount to hundreds of pounds, especially if numerous houses are surveyed before the right one is found.

Here are some of the most common reasons for housing chain collapses:

1. Fear of two mortgages - Buyers are unwilling to complete a house purchase, if their current house hasn't sold. Unsurprisingly, a lot of people don't relish the idea of two mortgages, especially if they've 'maxed out' on the new one.
2. Nowhere to live - Sellers are unwilling to sell their house first as they'll be homeless and have to rent.
3. Gazumping - Unfortunately, as deals are only provisional, some sellers may accept an offer but continue to advertise their house in the hope of accepting a better deal, regardless of the fact you have paid for surveys etc. for the house you thought would be yours!
4. Mortgages not agreed - Unfortunately, some potential buyers lie about confirmed mortgage offers, with vendors only finding out at exchange!

Many of these problems are outside your control. But there are still things you can do, to lessen the odds of your housing chain collapsing:

1. Keep the chain as short as possible

The shorter the chain, the quicker it should complete. If you can sell your house before buying a new one, not only will you shorten the chain, you'll place yourself in a strong position as a cash buyer.

Selling, then renting temporarily or staying with friends/family until your purchase completes may be worthwhile to give you this option. Renting may be costly, but a collapsed chain may cost much more – and don't underestimate the stress it creates too. Some friends of mine sold their house, and stayed with her parents until their new house completed after a housing chain collapse, and would thoroughly recommend it for reducing stress alone! Naturally, you need to get on well with whoever you stay with and it's best to lay out ground rules at the start (who pays for what etc).

2. Go for a cash buyer

Cash buyers are valuable beings! If your buyer is an FTB or cash buyer, the chain ends there and your sale should be smooth, so hopefully you only have to worry about your purchase. It may even be worth accepting a slightly lower offer for a cash buyer. And if you're a cash buyer yourself, don't forget how important you are and make sure you negotiate for all you can (but get your mortgage agreement approved first or you'll create more problems than you prevent!).

3. Bridging loans

This is a loan that serves to 'bridge' the gap between the purchase of a new house, and the sale of the old one - it basically allows you to own both at once (but pay two mortgages!).

Of course it comes at a price and is only useful if the interim between buying and selling is short. But it will allow you to keep your part of the chain afloat should something untoward happen and it saves you from renting.

4. Don't overprice your home

Be realistic when setting the asking price for your home. If you set it too high, and it remains on the market for a long time, potential buyers will wonder what's wrong with it. Get three quotes from different estate agents and look at some of the many new websites that offer house price information taken direct from the Land Registry (see nethouseprices.com, ourproperty.co.uk, myhouseprice.com and mouseprice.com).

5. Get an agreement

When you've agreed your sale, ask the vendor to take the house off the market. You can even get him to sign an agreement - protecting you from being gazumped! Insurance policies are also available that will repay fees if you're gazumped – but they must be taken out before you instruct your solicitor. Sellers may appreciate agreements to prevent 'gazundering', stating that the buyer cannot drop their offer when contracts are due to be exchanged.

6. New home deal /  Exchange homes

If you're buying a new home, some companies can either (i) hold your new house whilst helping you sell yours, or (ii) buy yours from you to sell on, whilst you move straight into your new home. This saves a lot of time and stress but it does come at a price

7. Establish a rapport

If you get on well with your vendor and try to be as flexible as possible, they will be less likely to let you down!

8. Home information packs

The Government's new 'Seller's Packs' (which become compulsory in 2007) should in theory help too – sellers are responsible for the searches and survey of their own home, so less time is wasted and buyers know where they stand. The idea is that these packs will speed up our embarrassingly slow system. But as a 'Home Condition report' is all that's required (by an inspector, not a chartered surveyor), many buyers will prefer the reassurance of paying for a Homebuyers report anyway, so is it worthwhile?

Finally, remember - never assume an offer is a sale (don't lay down deposits on carpets/curtains!), keep your solicitor and estate agent informed every step of the way (they need the odd nudge too!) and hopefully your chain will be a smooth running, successful one!

Take a look at our Homeowning Centre for more information on homebuying and mortgages.