Part exchange deals now account for one in four home sales in Scotland as frustrated homeowners look for new ways to secure a quick move.
Builders, brokers, solicitors and estate agents all report a marked increase of late in the number of homeowners deciding they can’t wait any longer for market conditions to improve. Part exchange is one way of circumventing the problem by allowing sellers to trade in their home as part of the payment for their new one.
The trend is a reflection of the slow housing market; five years after the housing market boom turned to bust there are few signs of life getting any easier for homeowners trying to sell up. While Scotland has proved relatively resilient in terms of house prices, industry insiders admit it will be some time before homes are selling in significantly greater numbers.
Virtually all of Scotland’s major housebuilders offer part exchange schemes, using them to shift new builds and potentially enjoying profits at any ensuing sale. Earlier this year, Barratt Homes reported a 40 per cent rise in Scottish part exchange sales in just 12 months.
Part exchange now accounts for around a quarter of all sales north of the Border, according to industry body Homes for Scotland (whose membership provides 95 per cent of new homes built for sale).
The appeal for homeowners wanting to move is that there’s no chain, removing the uncertainty that goes with relying on several transactions to go through and allowing for greater confidence over timing the move.
Michael Maloco, senior partner at Maloco + Associates in Dunfermline, has seen a distinct upturn recently in the popularity of part exchange.
“It’s not for everyone, but it certainly has its place in the market. Typically we see it with people who have their eye on a particular house type or plot but who have yet to sell their own home,” he said.
“Part exchange allows them to secure the property they want freed from the anxiety of having to wait until they sell their own home.”
For the seller it also means not having to pay for estate agents or solicitors, home reports and, where relevant, advertising.
Philip Hogg, chief executive of Homes for Scotland, said: “As well as providing confidence and reassurance through a guaranteed sale at a guaranteed price, part exchange also removes the stress and hassle which can be associated with putting your home on the open market.”
But while the appeal in the current market is obvious, it’s not without pitfalls and potential complications – especially when it comes to finances and the mortgage.
An obvious downside is that while part exchange means a guaranteed sale, you’ll be lucky to get the price you want. Housebuilders tend to offer a price around 5 to 10 per cent below the market value of your home and anecdotal evidence is that as demand for part exchange rises, the value discount is widening.
You’ll also have to ensure your lender is satisfied with the deal.
Alison Mitchell, mortgage expert at Edinburgh IFA Robson Macintosh, said: “Lenders are happy to lend on a part exchange property, although over recent times they have restricted the amount of discounts and offers they will allow per transaction.
“Part exchange with new builds is the most common and which lenders are most comfortable with. Part exchange on non-new build starts to frighten lenders, with some not offering this option.”
Maloco reports few problems with lenders over part exchange deals.
“Provided the lender is seeing the disclosure of incentive forms and is instructing its own survey on the new plot – as is now the case in 100 per cent of all new builds – then it’s making lending decisions based upon full disclosure and there ought not to be an issue,” he said.
Those disclosure of incentive forms were devised by the Council of Mortgage Lenders and have been adopted by lenders across the board, according to a spokeswoman for Clydesdale Bank.
She added: “We lend on new and non-new build part exchange homes and, in line with the market, an independent valuer would consider all the incentives on offer as part of the exchange. Lending is based on either the purchase price or the valuation, whichever is lower.”
But some borrowers may find their lender objects to them porting their mortgage to a new property secured through part exchange.
Jonathan Harris, director of mortgage broker Anderson Harris, said: ‘It may be particularly tricky if you have a cheap mortgage rate that you would like to hang onto as lenders generally are trying to move borrowers off such deals.
“Likewise, if you are in a fixed or discounted period there may be early repayment charges to pay if you can’t take the deal with you.”
If that happens you may find your only option is to cut your losses and take out another mortgage. That may be difficult if you no longer meet the lender’s affordability criteria (perhaps because your income has fallen).
“Lenders are also more reluctant to lend on new builds than older properties, so you may get a much lower loan-to-value than you require, said Harris.
“This will mean putting more of your own money in or trying to remortgage to a different lender, but bear in mind that all lenders are stricter on lending on new builds than in the past.”
Builders also have requirements that may rule out part exchange as an option for some would-be sellers.
They generally offer part exchange deals only on properties worth a certain proportion of the value of the new home, often around 70 to 80 per cent at a maximum.
This may come with a ceiling on the value of the old home being sold, which means you’ll have to be buying a home considerably more expensive than the one you’re selling.
There may also be an issue if your property isn’t deemed sufficiently saleable by the developer, perhaps because of its condition or type.
• Quick sales are rare in the current housing market, and virtually impossible in rural areas. But when David Beggs landed a new job in Stirling, there was precious little time in which to sell his home outside Kinross and seal the move he needed to make.
The market in Kinross was especially slow last year and several homes in his rural location been on the market for some time, so he knew his chances of selling quickly were slim at best.
With his mind open to alternatives, therefore, David asked a few developers what they might be able to offer.
“While I had heard of part exchange I always thought of it as the last resort. But when I looked into it, it seemed exactly what I needed, and Stewart Milne made it seem very straightforward.”
The housebuilder explained what it entailed and after its own and independent valuations, surprised David by offering him more for the house than he’d expected to get on the open market, in the current climate at least.
“It was very little hassle. The house was in good condition and had a new kitchen, and part exchange meant we didn’t even have to put it on the market and pay the usual house moving fees.”
The only sticking-point was with lenders, David being on a probationary period between leaving his former employer and starting with Handelsbanken, the Swedish bank whose branch he is setting up in Stirling this month.
“Being between jobs I had somewhat taken myself out of the market, but I managed to get a mortgage with my new employer.”
The whole part exchange process took three months and was easier than David had envisaged. “It was all about peace of mind for me, needing to move and not having a chain to worry about.”