In the property industry they call it a ‘chain’. And you really don’t want to be there if you can avoid it.
Probably worst of all is to be in the middle of the chain. You have to sell your house before you can get the cash to buy your new one. But the people who are buying your house need to sell their house before they can pay you. And the people buying their house need to sell …. etc, etc.
There can be many links in the chain above you. And if any one of them ‘breaks’, everyone in the chain (including you) may have to start again.
And there may be a chain ‘beneath’ you as well. If you are buying a second-hand home, the people who are selling it to you need to move out before you can move in. They may need to wait for the people selling their planned new home to complete their purchase. And they may need to wait …. etc, etc, all over again. And if the chain breaks, you’re all ‘back to square one’.
It can be a complete nightmare. But there are ways to solve the problem without losing too much sleep – or money.
One way is simply (well, it sounds simple) to sell before you buy. Sell your existing home, put the money in the bank, and then go shopping for your new home.
As a ‘cash buyer’ you can be in a position to negotiate a good deal and vendors (the people selling the home you want to buy) may prefer to take a lower offer from you than a higher offer from someone who hasn’t yet sold their own home.
Of course, there are downsides.
One is that you’ll probably have to move out of your existing house and take a short-term rental somewhere else (or move in with family or friends) while you shop around for your new home.
That’s not always the case, though. You may (if you’re lucky) be able to agree a short-term rental with the people buying your existing home, so you can stay there for a few weeks while you are house-hunting. Don’t count on this as an option, though – it’s rare that your desire to stay for a while will match your buyer’s plans. They are much more likely to want to move in straight away.
If you do need to move out before you have a new home to move into, you’ll have two sets of moving costs (from your existing home to your rental home, and then from there to your new home) rather than just one. And if you’ve put your furniture into storage while you stay with family, you’ll have storage costs to pay as well. Compared with all the other costs involved in buying and selling a house, though, it’s not a big deal.
But don’t forget that you won’t be getting much interest on money you put into the bank – and house prices will probably be rising all the time you’re shopping around. Again, it’s probably not a big deal at this time of relatively slow house price increases, but you don’t want to leave it too long before you ‘get back on the property ladder’.
Of course, there are other ways of avoiding getting caught up in chains.
If you are buying a brand-new home from a builder, you clearly don’t have a problem waiting for someone to move out before you can move in. So, there’s no chain ‘beneath’ you.
And the builder may be able to cut the chain ‘above’ you as well. Many developers – such as Larkfleet Homes and Allison Homes – offer schemes such as part exchange, assisted sale or guaranteed sale to help you get rid of your existing home at a good price.
With part exchange, the builder will take your existing home as part-payment for the home you want to buy. You then only need to find the money to pay the difference between the sale price of your existing home and the purchase price of your new one. And the builder can probably introduce you to a financial adviser to help you find a good mortgage deal (we can certainly do that at Larkfleet) if you need to borrow the money to do this.
In an assisted sale scheme, the builder will help you to sell your existing home – and while you are waiting for the sale to be completed, will reserve the home you want to buy for you. It takes some of the pressure off when it comes to selling your existing house. You know that you cannot ‘lose’ the home you want because the vendor decides to take a better (or quicker) offer from another purchaser.
And sometimes there are other benefits too – at Larkfleet, for example, we will pay your estate agent’s fees when the sale completes.
With a guaranteed sale scheme (at Larkfleet we call it Secure Home Purchase) the builder buys your home – and then, one you’ve moved out, sells it again. There is a small commission to pay but it can be well worth the money for all the hassle it saves!
Finally – well, as far as today’s blog is concerned – you can escape your chains by using a bridging loan. Basically, this is some short-term finance which puts cash in your bank while you’re waiting for your existing home to sell. It makes you a ‘cash buyer’ in the same way as if you had sold your existing home.
But bridging loans are not cheap. If you are planning ahead, most of the ideas above (selling before you buy or doing a deal with a builder) are probably going to be better value.
Where bridging loans can be really useful is to ‘repair a broken chain’. It is possible to get a bridging loan arranged within a few days. So, if the buyer of your existing home has pulled out, and because of this you are at risk of losing the option of buying your new home, a bridging loan can be a stop-gap solution. We’ll come back to this topic in a future blog post. At this stage, all we’ll say is – get some good financial advice before you go down this route!
In the meantime, you can read our advice on selling your existing home – because at some stage, the solution to all the problems is to find a buyer willing to pay a good price for the home where you currently live!
