Property chains start to collapse as deals fall over

Property chains are falling over because people are not selling their houses in time or getting enough from the sale of their property to meet offer conditions, says the boss of a mortgage broking firm.

Mark Collins, chief executive of Mike Pero Mortgages, said the last time he saw property chains falling over was in 2008/09, following the global financial crisis.

Property chains occur when a person makes their offer conditional on the sale of their property or on the condition of getting a certain amount for selling it. This can result in three or four deals being dependent on the pre- ceding sales coming through.

Collins said he knew of a recent attempted apartment sale where the vendor received four offers but they all fell over because the potential buyers could not sell their own houses or get as much for them as expected.

“It just takes one not to sell for the value they thought [they were going to get].”

He said people tended to ask the bank how much they could borrow, not how much they should borrow, and then go out and shop.

“So the minute you don’t get your number you have got a challenge.”

Collins said that meant it was getting tougher for those looking to upgrade their home.

Part of the challenge was banks constantly changing how much they were prepared to lend, he said.

“It depends on the week — it is a week-to-week thing. Normally we would get changes once every six months. Now one bank is changing something every week.”

That could be their rates, serviceability criteria or their take on responsible lending.

Collins said one example was more over-55s being turned down for loans.

“If the lending is going to be significant over the age of 65 they are being turned down or need to show they can pay it back by using KiwiSaver or downsizing.”

He said the view of buyers in Auckland had changed from “I have got to just get on the ladder” to “I can wait”.

People were also putting in cheekier offers, he said.

In recent years offers had been expected to be the capital value (CV) plus $30,000 or $40,000 more. But now some were offering just $5000 over the CV.

Collins said building inspectors were seeing much lower demand for their reports.

At the peak 30 people might want an inspection done on a house — now they might get only one or two people. Buyers did not want to get an inspection until they were sure they were going to buy now.

He said the change was creating opportunities for cash buyers and first-home buyers who did not have to sell first.