If you are buying a new-build home, if your current home is in good condition, and if it’s worth 70% or less than the property you want to buy, then you could avoid all the drawn-out drama of an open market sale by simply part exchanging your old home for a new one.
You’ll notice that there are lots of ‘ifs’ in that sentence, which means that part exchange isn’t right for everyone. However, if your current home does fit the bill, then part exchange could save you a lot of hassle and heartache waiting for a home sale on the open market.
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How does the process work?
Part exchanging a home is just like part-ex on a new car. If you meet the criteria set by the homebuilder, then they’ll agree to buy your old home when you buy one of their new ones. The process works like this:
- Choose a developer that offers a part exchange scheme
- Study the terms and conditions of the scheme to make sure you qualify
- Find a new build home in the scheme that you want to buy
- Have your current home valued and assessed by the developer
- If it meets their criteria, agree a price for your old home
- Set a completion date for when you complete on your new home
- Use some or all of the money towards your new mortgage
- Continue to live in your old home until your new-build is ready
- Sit back and relax without worrying about your sale
The advantages of part exchange schemes
The biggest advantage of part exchange on new-builds is that you avoid all the stress of selling your home on the open market. There’s no viewers, no haggling after survey and no waiting up to six months to sell your home.
More importantly, with around one in three home sales falling through, part exchanging takes away the worry that your sale will fail, and you lose your dream new home. Once a price is agreed on a part exchange property, the sale is guaranteed. The developer will not want to pull out because they’ll lose the sale of their own property in the process.
Part exchanging your home also means that there’s no possibility of a dreaded property chain forming. There’s only you and the new build developer, so your own sale will not be dragged down by a problem with someone else’s sale.
There are many financial advantages of part exchanging your home. For example, you won’t have to pay estate agent fees of between 1% and 3% + VAT, saving you thousands of pounds. Many developers will also cover your legal fees, or even arrange all the legal work on your behalf, saving you hundreds of pounds in conveyancing costs.
If your current home fits the bill, part exchange can be the smoothest, simplest way to move up the housing ladder and buy your dream new home. Unfortunately, it doesn’t work so smoothly for everyone.
The disadvantages of part exchange schemes
As we discussed in the intro, part exchange only works IF you meet all the right criteria, so it isn’t right for everyone, or even for most new home buyers.
Part exchange is only available on new build homes, and even then it may only be available on selected house types or plots on any given development. What’s more, in most cases, you can only part exchange your old home if it’s worth 70% or less than the home you’re buying. This means part exchange doesn’t work for downsizers, or if you’re moving from an expensive area to a cheaper one.
Your home also has to be suitable for the developer to want to buy. They will only take on homes that they know they can sell on, and so if there are any problems with your home, such as subsidence or damp, it will be rejected. Some developers will only accept the very best homes for part exchange, leaving many potential buyers disappointed.
Finally, although reputable developers will try to give you the best price they can for your current home, they’re unlikely to offer you full market value. You’re more likely to be offered what is known as a ‘realistic selling price’, which takes into account your savings on estate agents and other fees, and the speed of the sale. You could well get more for an open market sale if you have the time and patience.
Who sets the rules on part exchange?
As with any special offer to encourage sales, the terms and conditions are set by the builder that is offering the part exchange, and there’s little you can do to challenge these rules. As far as we’re aware, there are no specific laws or regulations governing how part exchange schemes are run, so developers have a free hand to set up their scheme however they want.
It may be possible, in individual cases, to get the company to be flexible with their criteria to enable your sale to complete. For example, if your current home is worth a little over the maximum, usually 70%, of the new property’s value, they may be prepared to bend the rules and still take your home in part exchange. However, you can’t count on this, and decisions are made on a case by case basis.
Furthermore, as discussed above, property developers will set strict criteria for the type of homes they want to take in part exchange. They are unlikely to take on a problem property, even if it means losing your sale. The last thing a developer wants is to be stuck with a home that they can’t sell, especially when this ties up hundreds of thousands of pounds of their capital.
Another rule that some developers insist on, is that the full value of your current home is put towards your new purchase. While this works for many people, and is common in all house purchases, it can be a restrictive rule for others. If your sale raises a greater amount than you need for a mortgage deposit, you may prefer to have the flexibility of taking some of the proceeds of your sale as cash to clear debts or invest in your new home.
Are cash buyers a better alternative?
Is selling to a cash homebuyer better than part exchanging your home for a new build? That all depends on your individual circumstances. Just like a developer, a cash house buyer will buy your home fast, with a guaranteed, chain-free sale, so you can get on with buying your new build home as quickly as possible.
In both situations, you won’t have to wait around, and there will be no viewer and no estate agents’ fees to pay. Like most developers, most cash buyers will also cover your legal fees, saving you even more.
However, a cash buyer will offer you less than market value for your home, and usually less than a part exchange offer would be. The good news is that you will get a little more than the usual 80% from a cash home buyer in these circumstances. Their purchase is exempt from stamp duty if you are buying a new-build home, under FA03/SCH6A/PARA1 of the HMRC Stamp Duty guidelines. This could lift their offer to around 85% of the market value.
Most importantly, cash home buyers have the advantage over developers in that they will not be limited by such strict purchasing criteria. Cash house buyers will buy any house, in any condition, as-is. Which means that if your home is rejected for part exchange by a developer, you’ll still be able to sell it fast to a cash buyer.
To see how much a cash buyer could pay for your home when you are buying new, click the button below:
Expert Insight from Kelvin Elliott
Kelvin Elliott, founder and buying director of myhomebuyers.co.uk discusses the pros and cons of part exchanging your home:
“If you have the right kind of house, at the right price, then part exchanging it for a new build can be a very swift and simple process that gets you moving into your new home fast.
“Unfortunately, in our experience, these schemes tend to have very strict rules that leave a lot of potential customers out, which is where we come in.
“If you’ve been rejected for part exchange by your new-build developer, talk to a cash buyer about a fast cash home sale. Because of the Stamp Duty rules, they could offer you more than you expect, putting your move back on track so that you don’t lose your new dream home while you wait for a traditional sale.”
How does part exchanging a property work?
Property part exchange is exactly what it sounds like. The developer will take your old home as part payment for your new one, reducing the price. Part exchange means you don’t have to go through the long, drawn-out drama of an open market sale.
Is part exchange a good idea?
If your home qualifies for the scheme, and the price offered works for you, part exchange can be the easiest way to buy a new-build home. However, it doesn’t work for everyone.
Are there any downsides to part exchange?
The criteria for part exchange can be quite restrictive in terms of the value and condition of your old home, and not all homes will qualify. You may also find that part exchange restricts what you are able to do with the proceeds of your sale.
Will my home be accepted for part exchange?
Not necessarily. Property developers do not want to be saddled with unsellable homes, so they are very cautious about which homes they agree to buy.
Will I get full market value if I part exchange my home?
No. Property developers will want to cover potential losses and costs, so they will generally offer less than the full market value of your home in a part exchange deal.
What can I do if my home is not suitable for part exchange?
You can sell your home just as fast by using a cash house buyer. Cash buyers will buy any home in any condition, and there will be no limit on the selling price relative to your new home, as there is with part exchange.
Why choose a cash buyer when buying a new-build home?
Cash buyers can offer more for your home if you are selling to buy a new-build home, because they will be exempt from paying Stamp Duty on the purchase. This makes the cost of a quick and convenient home sale less.
Conclusion
Part exchange schemes are a common selling tool in the new-build housing industry, but they’re not right for everyone. Cash homebuyers can often provide a more flexible route to selling your home fast, especially when your home does not meet the criteria for part exchange.
To see how much you can get by selling your home to a cash buyer to buy a new-build home, click the button below for a free, no obligation estimate: