When browsing for houses or flats, you might come across terms such as ‘no onward chain’, ‘no upward chain’ or ‘chain free’. If these phrases seem confusing initially, fear not.
While this terminology may seem complicated at first, it is pretty simple. If a property is part of a property chain or an ‘onward chain’, this means the seller is dependent on finding another property to buy before they can sell it.
In contrast to this, a property with ‘no onward chain’ is free from this requirement. The sale of such a property is not contingent on the seller’s need to find a new home first.
In this blog, we explore the mechanisms of property chains, the reasons why a property may or may not be part of an onward chain, and the pros and cons of buying a property within an onward chain. Additionally, we’ll discuss the potential pitfalls that can occur during chain-free purchases.
What is a property chain?
A property chain is a series of linked housing transactions that are dependent on each other for house sales to complete.
These occur because, usually, when selling a house, you will need the equity sitting in your current property in order to purchase your next property. Property chains are widespread in the UK, often stemming from homeowners using proceeds from their existing home sale to finance their new property. Most property transactions rely on at least a small chain.
At the bottom of each chain is a property which is being sold without the intent of immediately using the funds to buy another property. This property is the one with no onward chain and will typically be a first-time buyer – but not always. This could also be a buy to let landlord or an inherited property sale where the sellers are not looking to fund another purchase.
How do property chains work?
Imagine you’re a first-time homebuyer or maybe someone who’s looking to purchase a second home —let’s call you Alex. You come across a perfect house and agree to buy it from its current owner, Barry. At this point, you, as the chain-free buyer, initiate the creation of a property chain.
Here’s where it becomes interesting. Barry, who’s selling his house to you, is also on the hunt for a new property. Until he identifies a suitable one, he can’t complete the sale of his house to you. His need to secure his next home before selling the current one can delay your purchase.
Suppose Barry finds a property he likes, which is owned by Cath. While this seems like a step towards solving the issue, it introduces a new complication. Cath, who is now a part of this chain, also needs to find her next home before she can sell her current one to Barry.
This chaining process could, in theory, extend infinitely. However, thanks to chain-free properties—homes sold by individuals who aren’t seeking another property, such as estate sales, new builds, or buy-to-let landlords—the chain eventually comes to an end.
In reality, property chains typically involve between three to ten parties (although they can be longer). The chain starts with a chain-free buyer (like Alex) and ends with a chain-free seller.
After each participant has found a buyer for their current home and a new property to move into, the chain is complete. At this point, an agreement to exchange contracts is made. This significant step is usually coordinated to occur on a single day, with all parties’ legal representatives verifying the confirmation of exchange up and down the chain.
During this contract exchange, a formal completion day is set. From here, every participant can proceed to move, much like a line of hermit crabs each scuttling into their new shells. The property chain can be intricate and sometimes slow, but understanding its workings is crucial in navigating property transactions.
What are the benefits of a property having no onward chain?
A property with no onward chain offers a whole host of benefits to potential buyers.
Among these is the potential speed it can give to a transaction. This is because the property’s owner does not need to find a second property before they can sell, and therefore, as a buyer, you are only limited in speed by your own ability to secure funds and have your conveyancer and surveyor quickly check out the property.
A second advantage to buying a property with no onward chain is an increased certainty the transaction will succeed. This is for a couple of reasons.
Firstly, the faster speed of a transaction involving a property with no onward chain reduces the chances of you being gazumped, that is having another buyer offer a higher price prior to the exchange of contract. Second, the lack of an onward or upward chain means that you are not vulnerable to having the chain collapse above you, potentially halting or ruining your transaction.
This increased certainty of success leads to the third major advantage offered by chain free property that is, less stress. With fewer parties involved, there are fewer variables and potential problems to consider, offering significant peace of mind when buying a property.
Should I sell with no onward chain?
If it is at all possible yes!
You can sell a property with no onward chain by moving out of it into rented accommodation or in with family for a few months.
Selling with no onward chain can make your house sell substantially faster and can in some cases be worthwhile despite the uncertainties of renting for a short while.
Once you have sold your property you will be in the envious position of having a large lump sum. This can make getting a mortgage and buying a future house a lot easier.
Why might a property have no onward chain?
There are a bunch of reasons a property can have no onward chain— typically, the estate agent will inform you of the particular reason a certain property is being sold chain free in the property information pack.
Reasons for a property being sold chain free can include:
Inheritance
When people inherit a property, a lot of the time it is left empty.
Often these properties are in probate and must be sold in order to execute the deceased’s will. The executor will not be using the equity to buy another property and will instead send it on to the people or organisations who are due it.
While the heirs of the property’s owner may use the money gained from the property sale to fund a property purchase, this must wait until the probate process is complete and any due funds are deposited with them.
This means inherited properties are often sold without an onward chain.
Tenants
Sometimes, landlords decide to sell their buy to let property with tenants still in place. This can be a good idea as professional landlords often look to buy properties with tenants in place as investments.
This is especially common with strong tenants who have kept a property in good order and always paid their rent on time. Often in these situations landlords would rather sell with tenants in place and not serve notices for possession.
Regular Property Investment
Property investors regularly sell properties with no onward chain. An example of this would be a home buying company that specialises in helping homeowners sell property faster than a traditional estate agent can.
This is because they usually have enough available capital to work on multiple investment properties at the same time and are not dependent on a sale completing in order for their next purchase to take place.
This may not always be the case however, as smaller developers may be looking to make their next investment using the money from your purchase.
Repossession sales
When a mortgage lender repossesses a property, they are legally obligated to sell it on the open market. This is done by marketing via estate agents and auction houses.
As the money will go towards clearing the loan debt and other liabilities, the mortgage lender is obviously not going to be purchasing another property with the proceeds.
This means all houses sold by mortgage lenders following repossession have no onward chain.
Part-exchange sales
Often, new-build developers offer something called a part exchange scheme. These schemes involve the developers buying one of their customer’s properties as part of the deal to sell them a new build.
After the developers successfully use this technique to convince people to buy a new build from them, they are left with their customers old properties. These will have no onward chain as the developer is simply going to put any funds that they earn from this back into their company balance sheet.
Auction Sales
Houses sold at auction always function as if they have no onward chain, regardless of whether the seller is buying another property or not.
This is because the buyer has a legal obligation to buy the property within an agreed timeline and will do so regardless of whether the seller finds another property or not.
The seller will receive their payment and can pay for their next property whenever is convenient for the relevant chain.
Do chain-free properties have any downsides?
There is one core downside to buying a chain free property— its increased desirability will make competition for it much stiffer.
This can result in people who are selling chain-free property negotiating hard, and only taking the best offers that come along, as they have enough interest in their property that they can afford to turn down anything else.
Note that this is not always the case however, and some chain-free sellers are looking to sell their properties as quickly as possible. These sellers may accept a less-than-perfect price but will want a buyer who can move fast— potentially even a cash buyer.
What can stop the sale of a property with no onward chain?
Just because you are buying a house or flat without an onward chain this does not mean your sale is completely secure.
There are still lots of reasons a property sale can collapse, even if it not dependent on another ongoing sale.
For example, either party can become frustrated and give up if they do not receive the necessary information or a house sale is paused for no apparent reason. This is sometimes down to delays caused by another parties’ conveyancer, or the other party not being forthcoming with information.
Alternatively, the buyer’s mortgage could be declined, which would render them unable to purchase the property, or the survey or one of the searches, could reveal something seriously wrong with the property that results in the buyer pulling out.
Finally, even if the property you are buying has no onward chain, you could still experience chain issues. For example, potentially your buyer’s buyer pulls out, and suddenly the mortgage becomes unaffordable, or a conveyancer even further down the line forgets an important document, messing the whole process up and causing enormous delays.
In order to completely avoid chain issues, you would need to be a chain free buyer purchasing a property with no onward chain.
In Summary
Property chains are collections of linked property transactions dependent on each other in order to proceed to completion.
A property having no onward chain means its seller is not using the equity from their sale to immediately buy another property.
Chain free properties offer a number of distinct advantages for a buyer. These include a potentially quicker, more certain purchase which offers great peace of mind.
However, while buying a chain free property reduces your vulnerability to the transaction falling through, it does not render it indestructible.
It is worth trying to sell your house without an onward chain if possible, Marketing your property with ‘no onward chain’ could generate additional interest, potentially securing yourself a faster sale or improved selling price.
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