How can property chains effect first time buyers

As a first-time buyer, you will encounter a host of terms that may frighten you. The phrase ‘property chain’ is perhaps one of the most important as it can have a huge impact on how smoothly your purchase operates.

Whether buying your first home or first investment property for buy-to-let endeavours, here’s all you need to know.

What is the property chain?

The property chain is a term that describes a situation in which multiple property transactions are linked together by further purchases and sales. A simple three-link property chain could look like this;

Person A is buying a property from Person. However, Person B is buying a property from Person C. Therefore, Person A’s property purchase is reliant on the sale of Person C’s property to Person B, meaning all three people are linked by the two transactions.

As a first-time buyer, there is no chain beneath you, which is undoubtedly a positive starting point. However, the person you’re buying from may have a chain above them. Worse still, it’s not uncommon for chains to include six or seven transactions. It probably sounds a little more complicated as it does as each person within the chain can only be directly affected by two transactions.

Still, the indirect links within the chain can make things a little complicated.

How does it affect you?

For your purchase to be completed, it is necessary for all transactions within the chain to be synced. Unfortunately, there are many reasons why one of the links may break – either temporarily or permanently. Common reasons for delays or collapses include but are not limited to;

• A buyer cannot secure the mortgage they thought they could get,
• A seller decides not to remove their property from the market at the last minute,
• A buyer delays the process by reducing their bid at the last minute,
• A seller accepts a higher bid before the contracts are formally exchanged,
• A person involved in the chain dies or suffers a major change of circumstances.

When one of the links is hindered, it will cause a knock-on effect. In turn, this will delay your purchase until the link is either mended or replaced. In many cases, the delays will last days. However, it is possible that it could last weeks, months, or even ruin the process altogether.

Worst of all, some of the expenses encountered cannot be recuperated. As such, every buyer – first-time or otherwise – should familiarise themselves with the dangers.

How to prevent major delays or total collapsing

As a responsible homeowner or investor, you should seek opportunities to reduce the threat of damages to the property chain. While you cannot control the entire situation, several positive steps can be taken. These include but are not limited to;

• Try to find a seller that is not linked to a chain or, failing that, keep the chain as small as possible,
• Ensure that your solicitor or legal advisor is working fast, pushing towards the exchange at all times,
• Communicate clearly and quickly as your delayed response to a simple question could bring serious problems.

Meanwhile, if a sale up the chain breaks down, you could ask your seller whether they’d consider still selling. They could then opt to live in rented accommodation until they find a new place. When you pay for the first few months of renting, they may consider the option. Either way, it’s important to protect yourself with insurance to prevent major losses in any scenario.

To find out more about the property chain or any other part of your proposed purchase, our advisors are here to help.