Part exchange involves a buyer using the value of their current home as part-payment for their future home purchase. It’s a scheme that’s typically offered by developers of new build properties and is becoming increasingly popular.
The number of housebuilders offering part exchange deals increased from 150 in 2021 to 165 in 2022, according to a recent report by The Times. Housebuilder Persimmon ( PSN.L ) made part-exchange deals on 25% of its sales in the first two months of 2023, compared to 6% in 2021.
In the current buyers’ market, it’s likely that many more frustrated sellers will turn to part exchange as a way to simplify the house moving process. It definitely reduces the uncertainty and stress involved, but what should those doing this be aware of?
We asked six property experts for their take.
How does part exchange work?
If you find a property you’re interested in buying, and haven’t sold the home that you live in, you can approach a developer to see if they offer part exchange as an option.
Schemes differ but, in general, a developer will value your home and come up with a figure, which you can either accept or reject. If a developer doesn’t offer part exchange, there are independent part-exchange providers that you can approach.
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“Some developers only offer it at certain times of the year or in specific market conditions,” says Saddat Abid, CEO of Property Saviour . “Independent part-exchange providers, on the other hand, tend to offer their services year-round.”
“There are other companies that buy properties as cheap as they can so that they can put them back on the market and turn a profit. This is less of a part-exchange situation but, if time is more important than money, these companies will usually offer around 66% of market value for an instant sale,” says Jason Gray, property expert at OneDome .
Whichever provider you decide on, be sure to familiarise yourself with all the details.
“Look out for any extra fees they might charge for surveys or administrative costs. It’s worth knowing everything upfront,” says Sarah Walker , independent estate agent and property expert. “Remember that a part-exchange sale is locked in at today’s value, so you won’t benefit from any potential price increases while you wait to move.”
What are the benefits of part exchanging?
The biggest benefit of part exchange is the certainty of a sale.
“Recent data shows it’s taking around seven months, on average, from listing a property to completing a sale. And here’s the kicker: only half of the properties that go up for sale are actually selling at all,” says Walker. “For many people, the thought of waiting months, dealing with viewings, price negotiations, and the dreaded ‘buyer chain’ collapsing… it’s stressful.”
Part exchanging also offers a speedy sale, if that’s something that you’re after, plus, you can move on a day of your choosing.
“This can be particularly appealing if you're keen to move quickly or have had difficulties selling your property through traditional methods,” adds Abid.
Arsh Ellahi, property investor and expert, flags that there are benefits for the developer too. “[It] ensures they are in control of the transaction.”
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Previously, there were stamp duty exemptions if you were part-exchanging properties, but these no longer apply. However, you will save on estate agent costs as they tend to take a low percentage of the property’s value in payment.
What should you be aware of?
The main disadvantage of part exchange is that you’ll have to take a hit on the value you get for your home.
“Part-exchange companies cover their business costs by buying your property at a discounted price,” explains Abid. “They then resell it on the open market at its full market value.”
Our experts say the discount you should expect from a part exchange is anything from 30% to 5% less than what you’d get on the open market.
To work out how much you are potentially losing out on, all the experts advise getting two or three valuations from local estate agents, and potentially a RICS valuation too.
“This will give you a clearer picture of your home’s open-market value. You need to know if there’s a gap between what the developer offers and what you could achieve on the open market. Having this information is crucial for making a confident decision,” says Walker.
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Just bear in mind that estate agents, in particular, will over-value a property in order to win business and it may not be the price that you will actually achieve.
Having all this information to hand, however, means that you are in a better position to negotiate — either on the price offered for your home or the new home you are purchasing.
“Developers or part-exchange providers tend to offer a fixed amount based on their own valuation process. However, there may still be opportunities to negotiate aspects of the deal, such as incentives on the property you're purchasing, which could potentially include upgrades or other financial perks,” says property expert Liam Gretton .
“You should try and offset any discount from your house against the new house you are purchasing. Technically, as you are acting as a no chain buyer, it puts you as the buyer in a great position,” advises Ellahi.
That said, Steph Lyke, of SAS Daniels , offers a word of warning: “If you negotiate a higher price on your sale, they will invariably look at increasing the purchase price on your new build.” She adds that new builds are traditionally priced at the top end of the market, and therefore can lose value immediately after they’ve been purchased.
Another potential disadvantage of part exchanging is that it sometimes involves strict criteria.
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“Many developers will only consider properties that are worth up to 70% of the value of the new home you’re buying. This can limit your options, particularly if you're looking to downsize,” says Abid.
Other criteria include the location and condition of the property you are selling so part exchange may not always be an option you can count on.
Who’s best suited to part exchanging?
In theory, anyone who has a home can part exchange, but it’s most beneficial to those wanting a quick, uncomplicated sale.
“Those who may be relocating quickly, downsizing, or who want to avoid the traditional market's uncertainties,” says Gretton.
“Part exchange really shines for people who don’t have the luxury of time — maybe your job’s relocating, or you need to be in a new home before school starts,” adds Walker. “Older homeowners and those downsizing also tend to love it because it offers peace of mind.”
“While part exchange offers convenience and certainty, it's not always the best financial decision,” concludes Abid. “Homeowners need to carefully weigh the reduced stress and guaranteed sale against the potential loss in value.”
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