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Rise in gazundering a growing threat to already precarious property chains

ended 07. September 2023

With house prices falling and buyers holding all the cards, gazundering is a growing threat to already precarious property chains, according to property and mortgage experts.

“Gazundering is proving increasingly common at the moment”, said Lewis Shaw, founder of Mansfield-based Shaw Financial Services. “At the eleventh hour, buyers are trying to pull a fast one and that's crippling chains. On the whole, chains are taking too long, all parties are getting hacked off, and some are calling it a day.”

Kundan Bhaduri, director of London-based property developer and portfolio landlord, The Kushman Group, agreed, adding that down-valuations and archaic legal processes are also throwing a spanner in the works: "Gazundering is on the up, as are failed surveys due to down-valuations. Archaic conveyancing taking forever doesn’t help with the complexity involved in long chains, either. The fragile links in property purchase transactions are increasingly snapping under the weight of all these factors."

For Rhys Schofield, brand director at Derbyshire-based mortgage advisers, Peak Mortgages and Protection: gazundering is less of an issue than down-valuations: “I don't think gazundering is as much of a problem as over-zealous surveyors finding fault in good quality properties, telling the lender that's appointed them that the property isn't suitable security for a mortgage. We've had three cases in the last month rejected by valuers for being close to pubs alone. We've managed to replace every case by going to lenders that use a different surveying firm, and at better rates as rates have fallen, but it is frustrating and scary for clients.”

As well as noting the impact of down-valuations on property chains, David White of Chelmsford-based mortgage broker, Simply Lending, said mortgage rate volatility is also hitting chains hard: “Two primary causes of chains breaking are the downvaluing of properties and fluctuating mortgage rates. Surveyors, seemingly more cautious now, frequently devalue properties by less than £10,000 without clear justification. The instability of interest rates further exacerbates the situation. Before a mortgage application is locked in, a buyer's arrangement can unravel the instant a lender adjusts their rate.”

White's views were echoed by Richard Campo, founder of London-based Rose Capital Partners: "One reason we have seen an unusually high amount of chains fall through is when old mortgage offers expire. Depending on when you agreed the purchase originally, the 'new rate' could well be 1%-2% higher, which some borrowers are simply unable to stomach. This is felt particularly acutely in the buy-to-let market where stress tests have also increased substantially, meaning not only is the rate higher, but the loan on offer has decreased by 10%-15%."

Sophie Pollard, director of Brighton-based estate and lettings agency, MyHaus Brighton, is seeing much the same thing: “One of the main factors in chains falling apart is affordability and ever-changing mortgage rates and products.”

Charles Breen, director of Wellingborough-based mortgage broker, Montgomery Financial, also noted the instability of property chains at present: “Chains are most certainly more precarious than they were previously. A lot of this is due to completions taking so long that people are falling out of love with the property, have longer to keep looking online to find something new to purchase or simply that the mortgage offer a person in the chain has runs out, and they now have the option of completing the purchase at a much higher rate and are baulking at the new payments, so are pulling out.”

Another issue stalling chains, said Shaw, is buyers lowballing to the extreme: “Just because prices are reducing doesn't mean you can wade in thinking you're the Wolf of Wall Street with an offer 40% below the asking price.”

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13 responses from the Newspage community

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Kundan Bhaduri
Property Developer and Portfolio Landlord at The Kushman Group
We are seeing a lot of issues at the moment in the market due to financial instability. Gazundering is on the up, as are failed surveys due to down valuations. Archaic conveyancing taking forever doesn’t help with the complexity involved in long chains, either. The fragile links in property purchase transactions are increasingly snapping under the weight of all these factors. If I had to pick one reason, it is public confidence in the market that is driving this state of the market, and often negative stories in the media play a big part. Separately, sellers are also abruptly withdrawing their properties thinking they might get more for it later, particularly if they are not hard-pressed for the cash at the moment. On the other hand, buyers, amid a labyrinth of options, are also discovering alternative cheaper homes they might fall in love with, or a better deal elsewhere, while some are simply getting cold feet.
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Sophie Pollard
Director at MyHaus Brighton
One of the main factors in chains falling apart is affordability and ever-changing mortgage rates and products. Where offers have been made based on mortgage-in-principles, once it comes to crunch time they are no longer feasible or available. There is also an element of estate agents not working together to come to beneficial outcomes for their clients and each other. The market is different so we need to update our approach. I think if competition and ego can be put aside for a second, more of these chains won't fall through and negotiations can be made on either side to get the desired outcome.
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Richard Campo
Founder at Rose Capital Partners
One reason we have seen an unusually high amount of chains fall through is when old mortgage offers expire. Depending on when you agreed the purchase originally, the 'new rate' could well be 1%-2% higher, which some borrowers are simply unable to stomach. This is felt particularly acutely in the buy-to-let market where stress tests have also increased substantially, meaning not only is the rate higher, but the loan on offer has decreased by 10%-15%. This leads to some buyers trying to reduce the price at a late stage, and if the seller doesn't need to sell, they are quite happy to go back to the market and wait it out. I think this will wash out as rates decrease and the market realigns but I expect this to be an issue for the remainder of the year, as mortgage offers are valid for up to 6 months.
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David White
Chief Operations Officer at Simply Lending
The ripple effects of economic uncertainty have placed numerous property chains at risk. Two primary causes of chains breaking are the downvaluing of properties and fluctuating mortgage rates. Surveyors, seemingly more cautious now, frequently devalue properties by less than £10,000 without clear justification. Previously, such downvaluations were largely attributed to specific concerns like dampness or structural issues. The instability of interest rates further exacerbates the situation. Before a mortgage application is locked in, a buyer's arrangement can unravel the instant a lender adjusts their rate.
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Charles Breen
Founder at C B
Working with many local estate agents, we are definitely seeing a trend of chains breaking at the moment and not always being able to salvage them, which is affecting multiple purchases as a result. Chains are most certainly more precarious than they were previously. A lot of this is due to completions taking so long that people are falling out of love with the property, have longer to keep looking online to find something new to purchase or simply that the mortgage offer a person in the chain has runs out, and they now have the option of completing the purchase at a much higher rate and are baulking at the new payments, so are pulling out.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
Property chains do not seem to us to be any more precarious than usual. Whilst there is more renegotiation over prices due to the reporting of falling house prices every month, this usually can be resolved without the chain breaking down. Mortgage rates have become more affordable over the last month also helping to keep chains on track.
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Craig Fish
Director at Lodestone Mortgages
We have experienced several very precarious property chains recently, with some fall-throughs. These occur for a variety of reasons, such as issues highlighted during valuations that require further specialist reports. However, the primary reason is difficulty with property prices and, in particular, those who are selling have difficulty in achieving the desired price to make the transaction work. This leads to attempted renegotiation of the purchase property price, often to no avail, leading to broken chains.
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Michelle Lawson
Director at Lawson Financial
This has been a problem for many years and comes down to the archaic process of the transaction. There is no commitment on either the seller or the buyer, legally or financially, when a property is marketed and a subsequent sale or purchase is agreed. I have had several over the years that have fallen through on the day of exchange or simultaneous exchange and completion resulting in a waste of time and money on legal fees and associated mortgage costs for all involved with no recourse. There also needs to be more cohesion with the parties involved. The valuation process is subjective and out of date, agents aren't regulated and many promise the world and the legal process needs to be modernised and made quicker to prevent buyers' remorse. It is the process that needs changing.
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Ranald Mitchell
Director at bad credit mortgage specialists Charwin Mortgages
Property chains have always been daunting and increasingly now, with so many moving parts and mortgage uncertainty. Sellers will be more willing to drop prices for the right buyer positions whilst those dependent on achieving a higher sale price will enter the dreaded chain. Downvaluations, interest rate changes and buyer confidence are all factors influencing your transaction and impact in the same way on every link in the chain. For those in the right positions, using bridging to buy and become in effect a cash buyer, can work well, whilst they sell their property.
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Lee Gathercole
Co-Founder at Rebus Financial Services
With chains that are taking some time to complete, we are seeing some first-time buyers and homeowners lose the mortgage products they had secured 3-6 months ago, which causes real issues. Rates were very different back then, and they can no longer afford to buy the house they wanted.
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Graham Cox
Director at Bridging Hub
Chains are breaking for a few reasons. One reason is surveyors are downvaluing properties more often than usual. Buyers are also getting more cautious due to higher mortgage costs. Some are realising they've overpaid, get cold feet and pull out. Bridging finance can be useful when chains break as it allows a buyer to purchase a property before selling their own.
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Ross McMillan
Owner/Mortgage Advisor at Blue Fish Mortgage Solutions
In Scotland, in recent weeks, it does seem like a few more properties are returning to market post-summer after proposed springtime sales haven't ultimately come to fruition for some. Typically these have been "chains" that have been dependent on a related sale where over-optimistic seller expectations have not been met but there have been a number that appear to have been directly linked to buyers withdrawing due to the rate increases seen since May. Fortunately, fallen-through sales are currently still minimal in number and due to the perennial undersupply of homes on the market, those that do occur are generally being snapped up quickly by another buyer. However, often this may be at a lower price than the sellers had previously agreed.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
I don't think gazundering is as much of a problem as over-zealous surveyors finding fault in good quality properties, telling the lender that's appointed them that the property isn't suitable security for a mortgage. We've had three cases in the last month rejected by valuers for being close to pubs alone. We've managed to replace every case by going to lenders that use a different surveying firm, and at better rates as rates have fallen, but it is frustrating and scary for clients.