The global real estate market size crossed ten trillion dollars last year. A huge part of the housing sector’s rise and future growth depends on sustainable financing and the ease with which buyers and sellers in a market come together through what’s known as the property chain.
Property chains significantly impact the housing market. This article is a guide for buyers and sellers, focusing on how to deal with common property chain problems.
Meaning Of Property Chain
In reviewing the common problems of property chains, it’s crucial to define what a property chain is. A property chain is a group of buyers and sellers who are linked together. You’re in a property chain if you wish to buy a house but must first wait for the seller to buy their next home.
It’s not surprising that bridging loans are a preferred financing method for ensuring a property chain doesn’t fall apart. As the name suggests, a bridging loan is a short-term financial solution for different property purchasers to finance their next transactions while waiting for their property to sell. Often, lenders require borrowers to repay their bridging loans between 12 and 24 months, after which collateral can be repossessed if the terms of the loan aren’t met.
There are various types of bridging loans, and each comes with distinctive features, pros, and cons. So it pays to do due diligence before applying for a bridge loan for your next property purchase.
Common Property Chain Problems
In principle, the property chain concept applies when the successful sale of a home hinges on the success of another home sale. Let’s face it; property transactions are not always successful, leaving numerous problems for chain members. Some common property chain problems to expect include:
Failed Mortgage Application
Financing plays an active role in determining whether a property chain will succeed or fail. A property chain is like a line of dominos, where one domino falls it can cause a knock on effect to the rest of the chain.
Mortgages are the mainstay of property transactions due to their long term nature and lower interest rates but circumstances may be such that the borrower’s application has been refused due to unforeseen circumstances. Where a borrower knows they can afford the loan but simply can’t afford it currently, a bridging loan may be of help.
Sellers Or Buyers Changing Their Minds
Another challenge property chain members face is the fluidity of transaction decisions. Sellers or buyers can change their minds at any time. What’s worse is that, unless you’ve exchanged contracts, this situation is almost unresolvable, as one party has no control over the other party.
Gazumping, as explained by estate agents Savills, is synonymous with fraudulent property transactions. It occurs when a seller accepts a higher offer from another after agreeing to a sale price with another buyer for the same property.
Gazumping also applies when the seller abruptly decides to raise the asking price at a point when the buyer has run out of options in exiting the sale. Surveys reveal that this challenge resulted in the failure of about 21 percent of house sales.
Generally speaking, property chains do work – In the last quarter of 2021, two in every three home sales in England and Wales completed. However that still leaves one in every three failing to complete. With the current micro and macro economic climate, including racing inflation and a potential recession sellers are keen to attract cash buyers to secure a fast property sale. This means if you’re not cash rich you’ll struggle to secure your next property, and if that happens bridging loans may be the answer.