The chain Unravelling the links between sales Autumn 2015
The story so far Contents More homes have been sold without an onward chain in 2015 than in any of the previous years. The growth in the number of chain free sales has been driven by a mixture of structural shifts, such as the growth of the private rented sector, and changing market conditions. 04 Are the days of lengthy chains coming to an end? Why who is buying your home matters Since the downturn, weaker markets where the longer time required to sell a home makes both vendors and purchasers in long chains less attractive has driven up the number of homes sold with no onward chain. So far in 2015, the number of homes sold chain free in North East and North West England is twice the level it was in 2007, although the recovery has served to slow this rate of growth. The picture is very different in fast paced London markets where the declining affordability since 20 has meant homeowners increasingly don t have the option of moving house before selling up first. Here just one in four homes was sold without an onward chain unchanged on 2007 levels.
THE CHAIN The last link in the chain? Are the days of lengthy chains coming to an end? In the UK most homeowners who move are reliant on the sale of their current home. While in some cases owners might choose to briefly move into privately rented accommodation to help with the sale of their home, most look to find a buyer for their own home at the same time as buying somewhere else themselves. A chain is formed when two or more homeowners are reliant on the sale of their property simultaneously to fund the purchase of somewhere else to live. Chains tend to help people move up or down the housing ladder. Those going up the ladder generally use a mortgage to bridge the difference in price between the home they re buying and the home they re selling, often selling their home to a first time buyer. At the other end of the market, those downsizing tend to be reliant on some of the capital raised from the sale of their home to buy somewhere new to live. On the other hand, landlords choosing to sell up offer homes to the market with no chain. 30% 35% 25% 20% 15% % Proportion of homes sold with no onward chain 5% 0% In 2015 two thirds of second hand homes sold involved an onward chain. Over the last decade however, the proportion of second hand homes sold with an onward chain has fallen in all but two years. Ten years ago 90% of all second hand sales were dependent on the seller finding somewhere new to buy. Today that figure has fallen to 67% with chain free homes no longer as rare to the market as they once were. London, where the high cost of housing means that buyers are most reliant on equity to fund their purchase has the smallest proportion of homes sold chain free in the UK. 26% of homes sold in the Capital last year were sold chain free, compared to 40% in the North West. While it might not be much consolation for those stuck in a long, slow moving chain, they are a sign of a healthy housing market. When one homeowner chooses or is able to sell directly to another, it is generally because their house is either too big or too small for them. When a market works efficiently it helps households to upsize or downsize to make the most efficient use of housing stock. 2004 2005 20 2007 2008 2009 20 2011 2012 2013 2014 2015 UK London Key facts 90% Ten years ago 90% of all second hand homes sold as part of a chain compared to 67% today. 26% Just over a quarter of sales in London are sold without an onward chain, the lowest proportion in the UK. 40% Four in ten sales in the North West have no onward chain, the largest proportion anywhere in the UK. The two main drivers of the number of homes sold without a chain are the sellers need to use equity to buy elsewhere and the type of seller. In the short term, the pickup in activity since the downturn across southern England in particular, has served to halt the fall in the number of homes sold with an onward chain. In higher value areas rising prices and their knock on effect on affordability have meant that equity, and the ability to release it, are becoming increasingly important. In London where prices have risen furthest and fastest since the downturn, the proportion of homes sold chain free in 2015 has hit the lowest level for seven years. Having to sell before buying somewhere else is becoming a prerequisite. But longer term the number of homes sold with no onward chain looks to rise further. While the housing market across most of the country is still dominated by owner occupiers selling to other owner occupiers, the growth of the private rented sector is creating a new submarket; investors selling to other investors. 75% of homes sold with no onward chain are bought by someone who isn t reliant on the sale of a property. As the number of homes owned by landlords grows, so too will the number of homes sold chain free. Even if landlords sell to homeowners or vice versa, with more homes in the private rented sector, chain lengths are likely to be shortened. The days of buyers and sellers being caught in chains look to be numbered. Breaking the chain - proportion of homes sold chain free Top 05 03 01 04 02 07 01 02 03 04 05 07 08 09 08 Hydburn 76% Oldham 66% Pendle 65% Liverpool 62% Blackpool 57% Wigan 56% Hartlepool 50% Nottingham 50% Southend 49% Derby 48% 09 4 5
THE CHAIN Sealing the deal From negotiating a deal to exchanging contracts: why who is buying your home matters Most people who are selling a home, are buying another one somewhere else. While getting the best price possible for the home they are selling usually determines whether or not an offer is accepted, moving home is usually a two stage process: most sellers are also would-be buyers. For a sale to progress to exchange of contracts, it s not just about the right price, finding the right buyer is important too. For a vendor there is a balancing act between price and speed/quality of buyer, and many take the pro-active decision not to just pursue maximum price. Buyers with no onward chain are attractive to sellers for a number of reasons. Firstly they are more likely to be amenable to the sellers timescales than a buyer bound by a chain, either buying with cash or living in the private rented sector. Not being reliant on the sale of a home brings other benefits too; the risk of fall through 82% 80% 78% 76% 74% 72% Proportion of vendors accepting the highest offer 70% 2004 2005 20 2007 2008 2009 20 2011 2012 2013 2014 2015 is reduced with the buyer dependent only on their own finance rather as opposed to anyone else s. Equally in some markets their ability to move quickly is highly valued; being independent of the time needed to buy or sell a home. In a supply constrained market like the UK, it is the vendor who tends to have the upper hand in negotiations with a buyer. Of course it s not as simple as that with most people selling their home are buying another one elsewhere so a flexibility is needed by both parties. Positive sentiment and rising prices tend to affect who a vendor chooses to sell to. At times where there is greater competition between buyers, sellers generally have the option of holding out for the best possible price. Buyers generally have to accommodate the vendor s timescales because they know if they don t there is usually someone else waiting in the wings. Preference for a chain free buyer when two identical offers are put forward London South West East of England South East West Midlands Yorkshire the Humber North West Wales East Midlands North East Chain Free Buyer 73 days The average time taken to exchange contracts from agreeing a sale when neither the buyer or vendor is in a chain. Chain free buyers purchasing homes from vendors in a chain typically get an additional 1.3% off the asking price. -1.3% 0% 20% 40% 60% 80% 0% Buyer in a chain The 2008 downturn shifted the balance of power between the buyer and the seller somewhat. Sellers had to start paying greater attention to the ability of a would-be buyer to complete on the sale. As the market slowed, despite good intentions many buyers became unproceedable. In a growing number of cases this led vendors to take a lower price in favour of a buyer who they believed was more proceedable. In 20, less than three quarters of buyers opted for the highest offer on the table. While the housing market has recovered strongly since 20, even today there is a similar story in weaker markets across parts of Northern England. Many vendors still remain sceptical that a potential buyer with a home to sell will be able to find a buyer in a timescale which suits them. Chain free buyers come in all shapes and sizes; ranging from first time buyers taking their first tentative steps onto the housing ladder, to seasoned investors able Proportion of asking price paid Vendor in a chain Chain free vendor Buyer in a chain 99.3% 97.2% Chain free buyer 96.2% 94.9% Time between agreeing a sale and exchanging contracts Vendor in a chain Chain free vendor Buyer in a chain 96 days 98 days Chain free buyer 90 days 73 days to put down cash without the need for mortgage finance. What unites them all however is that they are able to be relatively flexible to the demands of the seller, be it the need to move quickly or move home on a specific day. The flexibility they offer is reflected in the strength of their negotiating position and subsequently the price they are able to agree with the seller. In the last 12 months, the average home sold by Countrywide achieved 98.3% of the asking price. While the strength of the market has a large bearing on what the seller is able to achieve, the position of the buyer is at least equally as important. Buyers best able to accommodate the vendor s position are able to secure the largest discounts with vendors willing to pay to reduce the risk of a chain collapsing. Chain free buyers purchasing homes from vendors in a chain pay an average of 96.2% of the asking price, or 5,400 less than a buyer pays a vendor when they are both part of a chain. These are buyers and sellers having to pay a premium for their position. While chain free buyers tend to move more quickly than those reliant on finding a buyer for their home, it s when they form the start of a chain that their flexibility is really valued. When a chain free buyer buys a home from a chain free vendor, contracts are exchanged on average 73 days after the offer was first accepted. For those buying from someone in a chain, it takes an additional 17 days to exchange contracts, with the average vendor in effect paying 1.3% of their sale price for the benefit of this additional flexibility. The long term growth in the number of homes bought and sold without an onward chain, means buyers that are not reliant on the sale of a home are an increasingly large part of the market. Weaker markets in some parts of Northern England remain heavily reliant on chain free buyers to support transactions. With fewer sales dependent on an onward chain across the country as a whole, and with those chains which do exist tending to be shorter, the strength of the position commanded by chain free buyers has weakened. A decade ago someone buying without having to sell a property secured a discount of 1.9% over and above anything secured by a buyer in a chain. Today that figure is just 1.3% and in London the discount is almost negligible. Despite the erosion of the discount however, each vendor is driven by a different combination of price and flexibility. Those buyers best able to accommodate the seller s timescales, almost always find themselves to be most attractive, even if they find their ability to negotiate on price has diminished. 6 7
Authors Johnny Morris Research Director johnny.morris@countrywide.co.uk David Fell Research Analyst david.fell@countrywide.co.uk