Part exchange could be the key to the door of a new home
With a dearth of buyers, families looking to move house could consider selling to and buying from a housebuilder.
With the property market at a standstill, selling up isn't easy. But help is at hand from home builders who offer part-exchange schemes for those moving up the ladder and whose next step is a new-build home. But do these schemes offer a good deal?
Part exchange, or PX as it's known, allows you to trade in your home as part payment for your new home. Basically the home builder buys it off you, giving you certainty about timescales you don't get when selling your home on the open market through an estate agent. There are also no estate agent's fees to pay.
According to Barratt Homes, PX is on the up; the house builder has seen a 42 per cent rise in the past six months compared to the same period last year. Barratt spokesman Patrick Law says there are several reasons for this.
"In the current market there are a lot of homeowners who want to move and for the past few years have been putting it off. One of the big reasons is the difficulty of selling – finding a buyer, hassle, chains, eroding values during the process and so on. So a PX service which offers a guaranteed buyer, no chain, nor last minute changes of mind is therefore attractive," he says.
"The second reason for the increase in sales is the change in mix in the type of homes we build. We are building many more family homes (appealing to second-time buyers) and less apartments for first-time buyers. This is because of changes in the mortgage market."
Most of the major house builders offer part exchange including Bovis Homes, Linden Homes, Bellway, Taylor Wimpey, Persimmon, and Barratt. The advantages to the construction industry are clear; part exchange helps them secure buyers for new builds in a slow market. And if they can sell on part-exchanged homes at a profit, they'll be quids in.
But, inevitably, there will be a price to pay for an easy move. The home builder will arrange for at least two independent valuations of your existing home and will make you an offer based on these valuations. This will generally be less than the market value of your home. However, if it makes the difference between moving and not moving, this might not matter too much to some sellers.
Andrew Montlake, the director of mortgage broker Coreco, says: "Taking a hit on the price therefore may be less important than moving to start that new job."
Home builders tend to be vague about the percentage of your home's value you can hope to achieve. Bovis Homes says after the valuations "we'll advise you of the purchase price we are willing to offer," while Taylor Wimpey says it will make an offer based on "an opinion of anticipated selling price – not an asking price."
Steve Woomble, the sales director at Linden Homes North, says the percentage of the market value achieved is at the discretion of the sales director. "Each price is agreed on the merits of the home, taking into account the market value and the value of other properties in the area," he explains.
Barratt claims to offer 100 per cent of a property's market value based on two valuations. Mr Law says the reason for this is that Barratt is interested in the sale of the new house and aims to simply break even on the sale of the bought property.
Ray Boulger, the senior technical director at mortgage broker John Charcol, says when it comes to part exchange a developer effectively uses its 5 per cent or so marketing budget in one of two ways.
"They can sell the new property at list price and give the purchaser a good part exchange price, maybe even close to 100 per cent of value, depending on how toppy the list price of the new property is," he says. "Or they can give the buyer a discount on the new property but offer a lower price for the part exchange."
Mr Boulger says buyers tend to prefer the first option as, if the mortgage valuation stacks up and they only have a small deposit for the new property, a higher part exchange price will mean they can put down a bigger deposit, which gives them more options when it comes to their new mortgage.
Not all homes will be deemed suitable for exchange as there will be stipulations about the value and the type of property. Home builders will only consider homes worth up to a certain percentage of the value of the new home being bought. Bovis puts this figure at 75 per cent and Linden Homes 70 per cent.
Barratt also states 70 per cent with a maximum value of £250,000 for your old property. So if your existing property is worth £250,000 you'd need to be buying a property worth £357,142 – a figure that might be quite a leap up the ladder for most people.
Properties that might be excluded from part exchange include any deemed unmortgageable, as well as studio flats, properties with structural defects, and leasehold flats with less than 80 years left on the lease. Essentially home builders only want to buy properties they are pretty confident they can sell on without too much trouble.
Part-exchanging on a property, or buying new build, doesn't mean you can't negotiate on the price of both the property you're buying and the one you're selling.
Mr Boulger says developers might be desperate for completions as they approach their half-year or year-end. "Prospective buyers should always remember, especially if the property is outside the stronger London market, that the developer is probably at least as keen to sell the new property as the prospective buyer is to buy it and therefore they should negotiate hard, both on the purchase price of the new property and the part exchange price."
Once you've weighed up all the pros and cons, make sure you check the terms and conditions of any PX contract. If the developer agrees to buy your property and you later decide to drop out of your new build purchase, you might find there's a penalty fee to pay.
Expert view: Andrew Montlake, Coreco
"As with anything you part-exchange, you would probably get a better price on the open-market, but it can be a useful way of expediting a move on a property that you are finding difficult to sell."
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