August 8, 2022

How Specialist Finance Can Help Prevent Gazumping

specialist finance providers

By Paresh Raja

The UK’s property market is extremely competitive. A perennial undersupply of residential properties is exacerbated by a perpetually high demand among buyers and investors. It was estimated in late 2021 that there were around 29 prospective buyers for every residential property up for sale in the UK.

Of course, such an imbalance between supply and demand has led to soaring house prices. Indeed, at the start of 2005, the average UK house price was just over £150,000 – by February 2022, it had reached almost £277,000, according to official figures. In fact, properties in the UK saw more than a 10% increase in the past 12 months alone.

Such competition, as well as pushing prices higher, has also played a role in encouraging ruthless buying tactics, most notably gazumping. This is when a seller accepts a verbal offer on a property from one potential buyer, but then accepts a higher offer from someone else before contracts are exchanged.

Gazumping remains highly prevalent

In April 2022, Market Financial Solutions surveyed more than 500 people who had bought a residential property in England or Wales within the past decade. We found that almost one in three (31%) had been gazumped while trying to purchase their property, with the figure rising sharply to 51% among those who bought in London.

Worryingly, 37% of homebuyers said they had lost out on fees paid to solicitors and surveyors due to a property purchase falling through (for any reason). Of those who have been gazumped, 23% lost money as a result.

These are noteworthy findings, particularly when considering the associated costs; homebuyers lose an average of £2,700 when a purchase falls through. In fact, for just over 10% of buyers whose deal collapses, they end up losing in excess of £5,000.

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It is a prevalent issue. Evidently, the competitive nature of the market has encouraged buyers to resort to more extreme methods to get the property they want; nearly half (47%) of existing homebuyers in England and Wales said they would consider gazumping a rival buyer in the future.

The reasons and ramifications

As noted above, the financial implications of being gazumped are significant. Buyers can lose out on thousands of pounds. Add to this the stress and anxiety caused along the way, as well as the fundamental fact that a homebuyer or investor will miss out on a property that they had set their sights – and perhaps their hearts – on owning.

One in six (17%) property buyers who were gazumped said that in the end they settled for buying a property that they liked less than the one they missed out on. So, given the financial and emotional ramifications, it is important to understand which factors contribute towards someone being gazumped.

Speaking to those who have been gazumped in the past decade, MFS’s research found that two issues were particularly pertinent: property chains and mortgages delays.

A quarter (25%) of gazumping victims said it happened because they were stuck in a long property chain, while 20% said the problem lay with a mortgage lender that took too long to review an application or deliver the loan.

With buyers often reliant on other transactions going ahead or lenders issuing a loan, the delays in such processes allow time for other rival bidders to enter the picture late on, providing a seller with a more attractive offer – that could be more money, or it could simply be a chain-free cash buyer that would allow them to escape a complicated situation and, potentially, prevent themselves from being gazumped.

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How can buyers, who are stuck in these situations, protect themselves and mitigate the risk of being gazumped? This is where specialist finance comes in.

The role of specialist finance 

Short-term loans, such as bridging finance, can supply a buyer with funds to secure their properties in a much shorter time period. At MFS, this can be achieved in as little as three day.

Over the past two years, in particular, we have witnessed a rising interest in bridging finance to overcome long property chains and mortgage delays – this being largely down to the stamp duty holiday in 2020 and 2021, as well as the imbalance between the supply and demand of bricks and mortar. This has also led to larger acceptance of alternative finance as a form of finance for property investment, as solutions for the pre-mentioned issues within the housing market, that are appearing more prevalently.

Similarly, specialist buy-to-let mortgages provide investors with a faster alternative to traditional mortgages. They can be issued in a fraction of the time it takes many traditional lenders to deliver a loan.

The speed and flexibility of specialist finance providers like MFS can prove a significant advantage in the UK’s competitive property market. In helping to cut out property chains and remove undue delays, they reduce the risk of gazumping and give buyers greater confident that they can commit to a purchase without fears regarding rival bidders, hold-ups from third parties, or lost fees.

About the Author

Paresh Raja

Paresh Raja is the founder and CEO of Market Financial Solutions (MFS), a London-based specialist lender that provides bridging loans and buy-to-let mortgages. Prior to establishing MFS in 2006, Paresh worked as a senior professional consultant in one of the top five management consultancy firms, and also set up an independent investment group.

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