If you’re buying a house, chances are you’ve seen houses advertised as having no onward chain.
If you’re buying a house, chances are you’ve seen houses advertised as having no onward chain. Unless you’re an experienced property buyer, or perhaps work in the sector, it’s unlikely that you’ll know what this means. In this article we break down everything you need to know about houses with no onward chain.
We’ll cover the definition of a property chain, discuss what no onward chain means, and talk about some of the reasons that properties are sold as no onward chain. Then we’ll outline the benefits of property sold as no onward chain and the situations in which a sale could fall through. Finally we’ll discuss the differences between no onward chain and no chain, and we’ll tell you how you can become chain free.
If you’re looking for something specific or you’re short on time, use the menu below to navigate through the article quickly. Otherwise, read on for an entire overview of what it means to buy a property with no onward chain.
We tell you everything you need to know about property chains elsewhere in our blog, but we’ll give you a quick overview now. A property chain is composed of a number of buyers and sellers, and exists when each party in the chain is dependent on another transaction. As an example, a property chain could be composed of three parties. Let’s call them Mr A, Mrs B and Ms C.
Let’s imagine that Ms C is selling her house to Mrs B, and Mrs B is selling her house to A. Mrs B needs the funds from her house sale in order to purchase the house from Ms C. If for any reason Mr A is unable to purchase the property from Mrs B (perhaps because of a change of heart or circumstances) it will mean that Mrs B is also unable to purchase the property from Ms C. This is what is known as a ‘chain break’. It occurs when one ‘link’ in the chain has their sale fall through, which then impacts all other parties involved.
In this example we discussed a property chain that included only three buyers or sellers. However, it’s not uncommon for chains to reach as many as eight buyers or sellers. When a chain becomes this large there are a lot of moving parts. It’s easy to understand how a chain can break and why it’s so common.
But just how common is it for a chain to break? There aren’t any detailed statistics on how likely chains are to collapse based on their length. However, we know from government statistics that one in three property transactions falls through. Therefore we can extrapolate the probability of chain failure based on length, since a chain is just a series of linked transactions. You can see this likelihood in the chart below.
No onward chain (also known as an ‘upward chain’) means that the seller of the property isn’t purchasing another property using the funds from the sale. This means that the property is ready to be sold (and usually moved into) straight away. This is good news for prospective buyers who want to move quickly once their own sale is completed.
In the example above we talked about how Mrs B needed to sell her house in order to buy Mr A’s house. The chain broke because she wasn’t able to sell to Mrs C. The chain could also break if she was unable to buy Mr A’s house for any reason. This is because she wouldn’t have been able to move out of her house, and therefore Mrs C wouldn’t be able to move in. In this scenario, Mrs B has what’s known as an ‘onward chain’.
In short, having an onward chain can slow down the entire property chain and cause other sales to fall through if there are delays. There are a number of reasons that a property can be sold with no onward chain, we’ll go through some of the most common ones now.
Estate agencies will want to advertise the fact that a property is sold with no onward chain. You’ll usually find this information in the estate agency brochures or marketing packs, as well as any online listings. Estate agents will usually mention the fact that a property is sold with no onward chain as it makes the property more desirable.
There are many reasons why a property may be sold with no onward chain. We’ve listed some of the most popular ones here.
Selling a property with tenants in situ can be a tricky process. The properties typically appeal to a smaller pool of prospective buyers, so they take longer to sell.
Tenanted property is usually sold by buy-to-let investors who are looking to offload some of their portfolio to free up capital. They won’t need to move out of the purchase to complete, so these properties don’t have an onward chain.
When you buy a property at a traditional auction a deposit is paid and contracts are exchanged immediately as soon as the hammer falls. The purchase then has 28 days to complete, at which point the buyer or seller can be in breach of the contract and incur charges and interest.
This means that the existence of an onward chain is almost irrelevant. Sellers know that if they sell at auction they will have to move out of the property within a month. They will normally have locked down their onward plans and so these properties can be classed as having no onward chain.
When a house is being repossessed by a lender (usually a mortgage provider) they have a legal obligation to re-sell the property on the open market. The only legal duty that the lender has is to sell the property to the best buyer. The money from the repossession is then used to clear the debt on the mortgage and any other liabilities that the previous owner had.
These properties have no onward chain. The money from a repossession sale is for lenders to recoup their debt, not purchase another property.
When a house is part-exchanged with a property developer, the value of the house is offset against the seller’s purchase of (usually) a new build property. These properties are unlikely to be part of any property chain since the seller is the development company. They will use the proceeds from the sale to go back on the company’s balance sheet, rather than purchase another property. So the property sale won’t be delayed by an onward chain.
Companies who buy your house for cash like SmoothSale typically resell the properties on the open market. They typically have enough cash to purchase further properties without requiring the cash from the resale. This means that there are rarely any delays with the sale related to a chain. Cash house buyers will want to dispose of the property as quickly as possible (providing the price is right). So for buyers looking to move in quickly it can be a great option.
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