Richard Loudon explains the issues:

The first matter that has to be addressed when meeting with potential selling clients is whether they can offer for their next property before they sell their current one.

The dynamics of the market have changed dramatically since pre-recession. In those days, nine out of ten buyers would go house hunting and offer successfully for a property before marketing their own property. It has all changed now. I would estimate that now nine out of ten sellers have to sell before they buy!

“Why has this change come about?” Fundamentally, it is down to lack of market confidence and also the lack of confidence of buyers that they will actually get a mortgage offer from a lender.

Previously you would go and view houses, submit offers and once successful, the sellers were generally confident that you would come up with the money on the entry date. As a result there was no real pressure to conclude missives (exchange contracts) particularly swiftly and missives generally took three to four weeks to conclude. Without the delay that Home Reports now cause, you would then put your property on the market within three or four days and by the time you were expected to conclude missives for your purchase you would have already had numerous parties round your house, probably several Notes of Interest and in many cases have already declined offers. At that point you were entirely confident that your house would sell well and as a result were willing to commit to a contractually binding contract to purchase before you had a similar contract for the sale of your house. Those days are now gone.

Nowadays when acting for a selling client, one asks in depth questions of buyers as to their ability to fund the purchase. If they have not yet sold their own property, we ask whether they have a “Plan B” to be able to pay for the property if their own house has not sold. In most cases if they still have to sell and there is no robust Plan B, sellers will not sell to them. The result of this is that if you cannot afford to fund the purchase of a new property without actually obtained the funds from the sale of your existing property then sellers will not consider you to be a credible buyer. You should therefore at least have your own property under offer before pursuing another property.

The corollary of this is that many people will possibly have to rent for a short period should they sell successfully but not manage to buy their ideal new home sufficiently early to enable them to dovetail both purchase and sale on the same day.

This problem is compounded by the fact that English based lenders (which is most of them) seem to take an age to issue offers of loan. Subject to the precise circumstances most solicitors will advise clients not to concluded missives for a purchase until they have an Offer of Loan from a lender. This can result in missives taking many weeks to conclude thus shortening the gap that sellers have to find an appropriate replacement property and negate having to rent.

“Why can’t I just get a bridging loan?” is an obvious response. Regretfully the banks really don’t seem interested in taking any risk on lending on property and particularly in a situation where you do not have a concluded contract for the sale of your own house which is known as “open ended bridging”.

The sector of the market that I have found particularly impacted by this are the elderly. I have several clients who live in substantial £1M plus houses who want to downsize to a property worth around £500,000. They do not have the capital available to fund the purchase outright as their capital is tied up in their existing property. Despite the fact that if they were to buy the new property with an open ended bridging loan of £500,000 and give security to the bank on both properties totalling £1.5M, banks seem unwilling to facilitate such a loan even though their total exposure would be 33% of the total secured value.

Perhaps one of the Scottish banks could consider helping the fluidity of the Scottish property market by looking at situations such as these where the risk to them must be almost nil, and consider offering lending to help these elderly people.

Posted by
Richard Loudon


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