"UK home sales boosted by desperate vendors"

Today’s Financial Times describes a new sign of how bad things are in the real estate market in London. People are so desperate to keep their deals alive that they are buying houses they do not want (yes, that sounds completely barmy, but the piece explains how it works). The net effect is that not only are sellers having difficulty exiting the real estate market even with a nominally successful sale, but as the example shows, some are increasing their exposure.

From the Financial Times:

The London property market, once one of the most buoyant in the world, is now so stagnant that desperate vendors are spending hundreds of thousands of pounds buying houses they don’t want in order to sell their homes.

The extreme measure arises from the growth of the so-called property chains that often frustrate home sales in the UK, where houses are normally sold by one party to another, rather than by auction.

The chains occur when a line of buyers and sellers all rely on each other’s transaction to go through. If one deal falls through, because someone pulls out or cannot get a mortgage, for instance, the rest are delayed or fail.

In the increasingly difficult London market, where estate agents say prices have been falling or weak for most of the year, there are fewer cash buyers so vendors are facing longer chains that break down more often as buyers fail to obtain mortgages or try to negotiate discounts.

Rather than waiting for chains to clear, agents say vendors have begun to buy the properties of people further down the chain to clear the way for their own home to be sold.

One homeowner engaged in such a process told the Financial Times she had only been able to sell her house for £450,000 – in order to upgrade to a £700,000 home – by buying an apartment at the bottom of her chain for £200,000…

Hamptons International, one of London’s biggest agents, says it has a number of clients who have sold properties worth between £2m and £3m after buying homes in the region of £300,000 further down the chain. These properties are then being rented out or given to children.