What is the definition of a “short sale”, and for what reasons do they tend to take place in the UK?
You may have heard of the expression “short sale” when it comes to selling property, and to be fair, you may not have, because it’s not an overly common process found here in the UK. This is found far more frequently in the US.
However, if you are in a position where you cannot sell your property for as much as you owe on it – and we don’t envy you if you are – then you might have no choice but to go through the process of a short sale.
You may have heard of the term “negative equity”. If you have negative equity on your home, then you will be unable to sell it for as much as you owe on it.
Read on to find out more information on short sales.
What Are the Main Reasons Behind Short Sales Taking Place in the UK?
The main reason that short sales take place in the UK, is because a home owner with negative equity wants to sell their property. In this scenario, they will owe more on their mortgage than their home is currently worth. As we said above, this means they are in negative equity.
There are a multitude of reasons why this ends up happening, and we are going to list them accordingly below.
Why Would a Home Owner be Forced to Sell Using a Short Sale Option?
- It could be to do with them having financial difficulties in paying their mortgage. In some cases where home owners are struggling to pay their mortgage costs, they will have no choice to either sell their property, or face repossession. Selling is usually the favourable option.
- They might be looking to relocate to another part of the UK. This is often to do with having a change of career or job offer.
- In some cases, people will be looking to emigrate to another country, which of course, they’ll need to sell their home in the UK prior to doing.
Those are the main reasons why a home owner may be forced into selling using the option of a short sale.
You Mentioned Repossession Above. What is the Different Between a Repossession and a Short Sale?
As we’ve mentioned above, a short sale occurs when the lender allows the home owner or borrower to sell the house for a lesser amount than is currently owed on the mortgage at present.
The word “repossession” will ring alarm bells in the heads of even the calmest home owners. Repossession, however, is different to going through the process of a short sale.
A repossession will happen after a mortgage lender applies to court to repossess the property in question. This will occur after a home owner ends up in arrears on their mortgage from being unable to make payments.
One of the main differences between a short sale and a repossession, is that a short sale is done on the basis of an agreement that happens between the home owner / borrower, and the mortgage company. A repossession will occur when no agreement can be met, and the lender repossesses the property – usually against the will of the owner.
Any adverse credit is bad – so we would not recommend relying on a short sale if you can afford to make repayments. However, if the choice was to be between a short sale and repossession, then the former is far less damaging to your credit score and report than a repossession would be.
How Long Will a Short Sale Affect my Credit For?
So we’ve mentioned above that a short sale will unfortunately affect your credit rating. The question you’re probably asking now, is how long for?
Much like a repossession – only not as bad – a short sale is commonly regarded as negative on your credit history. A short sale can remain on your credit roll for up to seven years.
As with any sort of negative credit in your history, it will take time for this to recover if you choose to go down the route of a short sale.
Why Do Banks and Mortgage Companies Agree to Short Sales?
Given that they’re damaging to your credit score, you might be wondering why banks agree to conducting short sales in the first place.
The reason why many banks and mortgage companies will actually agree to a short sale taking place, is because in the act of a short sale, they are likely to receive a higher sum of money than if the property was simply repossessed.
If you haven’t heard the term “short sale” before, the reason for this might be because it’s not actually a legally defined term in the UK with banks and financial institutions. However, it is something that’s widely recognised among them, and is therefore possible. Remember this is always subject to the agreement of your mortgage lender, and all of them will have different policies on it.
Before you agree to go down the path of a short sale, then you must be sure that you are clear about the procedures of your lender which will be involved in the short sale.
At this point, when you are requesting information from your lender, they might suggest working together so you can reduce the amount that you actually owe. This could be helpful to you in a range of scenarios, but particularly if you are currently struggling to pay your mortgage.
Is it Possible to Negotiate the Price of a Short Sale?
Much like a regular sale, it is indeed possible to negotiate the price of a short sale. Remember, however, that the negotiations on the sales process, if there are any, must be confirmed and approved by your bank.
The better you can sell your property for on a “short sale” basis, the less likely you are to be left short of the cash to pay your lender what you owe.
Do remember, however, that if your mortgage company has agreed to go forth with the short sale with you, whatever the shortfall happens to be will be written off regardless.
It is therefore arguable that taking the time to negotiate price on a short sale, is effectively a waste of time and resources.
Do I Have Any Other Options Aside from a “Short Sale”?
Although short sales are definitely more appealing and less harmful to your credit score than repossessions, they are still arguable less than ideal, and we would recommend avoiding them if possible.
With that in mind, we think it’s only fair to discuss what other options you have aside from a short sale. Like we said, while better than repossession, it’s still not great.
One solution to this could be selling your property through a quick sale company.
Although some are ill – reputed, and have been dragged through the mud in the media since the early 00’s, the good quick sale companies out there can provide a real lifeline to someone in the scenarios we have discussed above.
- The first step you should take when considering selling to a quick sale company, is to do your research. Look online to see if these companies are members of associations such as the NAPB, as this will mean they are regulated and therefore have rules and regulations that they must follow.
- You should also look at reviews online. Contact us for further information and advice on this.
- When it comes to applying for a valuation with fast buying firms, it’s fairly easy. Usually all of this can be conducted online, and all you’ll have to do is fill in a form.
- It is worth remembering, however, that if you sell to a quick buying company, you are likely to get less than the market value of your property by around 10 to 15%. This is normal, buy any greater amount should be questioned. It might seem like a lot, but it’s an alternative to tarnishing your credit score.
- Following this, the cash buying company will usually make you an offer. Should you choose to accept the offer, they will buy your property.
- They claim to complete the process and have the money in your account in as little as 7 to 14 days. However, we would strongly advise reading reviews to see if this is actually an accurate measure of time.
And that’s about it! Furthermore, if you have the luxury of time, you could take your property off the market and wait and see if the market picks up – and whether the value of your home subsequently follows suit. Of course, if you’re facing repossession or emigrating, this won’t be a viable option for you, but in some scenarios it might be.
Thanks for reading today! We hope we’ve helped to clear up the definition of “short sale”, the pros and cons of opting to go through this process, and what your options are.