Property chain’s strength starts to weaken
The property chain is a necessary evil that the overwhelming majority of home buyers moving up the property ladder will be familiar with.
As the process relies on a series of interdependent transactions, the potential for things to go awry is considerable and is cited as one of the main reasons why moving house can be a stressful and protracted affair.
However, central London estate agent Best Gapp says there are signs that this trend is finally changing.
Following the economic downturn of 2008, which significantly depressed the entire UK property market, the number of homes sold without an onward chain has risen considerably.
This was initially most common in north-west England, with an average 40% of homes being bought chain free. London and south-east England have seen a lower percentage of chain-free sales but this has started to change.
Until recently, the higher price of property in London meant that chains were particularly prevalent in the capital. Buyers needed the equity in their existing homes, as well as their mortgage, to bridge the financial gap involved in moving to something larger or more expensive.
But Brixton estate agent Eden Harper reports that since 2010 substantial property price increases have led to potential buyers struggling with the affordability of home ownership. As a result, many have been forced to rent rather than buy their property.
During 2015, chain-free sales in London accounted for 26% of all purchases. Although this is lower than the national average this trend looks set to increase as there are a number of advantages to doing business this way.
Central London estate agent LDG says a chain-free transaction cuts the completion time by an average of 17 days. A cash buyer will be able to move quickly and fit in more readily with the requirements of the seller. This gives the purchaser considerable negotiating power, as vendors are often willing to accept a discount in exchange for a swift sale. On average, a chain-free buyer can secure a reduction on the asking price of 1.3% more than a buyer dependent on a chain could achieve.
Chain-free purchasers range from first-time buyers to tenants moving back into the market, some of whom will be funded by the sale of a previous property. However, the largest jump in chain-free sales is attributed to the private rental sector, where buy-to-let investors have sufficient funds available to close the deal without the need for mortgage finance.
Although the trend countrywide is still for owner-occupiers to sell to other owner-occupiers, the rapid growth of the rental sector is creating a new subsector in the market as investors sell to one another.
Buyers with the resources to complete without having to sell beforehand now account for 75% of all transactions with no onward chain. As the number of properties owned by investors increases, so the proportion of chain-free sales will grow.
This is a welcome improvement for those with the necessary buying power. However it’s inevitable that as more chain-free buyers enter the market their ability to negotiate meaningful discounts will be reduced. Given the traditional volatility of the UK housing market, it’ll be interesting to see where this situation leads in 2016.