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21 February 2024

Part exchange pops up on the British property landscape

By Graham Norwood

It helps new home buyers get rid of their old property, usually at a discount of some 20 per cent. They take a financial hit but at least can progress with buying their new home.

The problem has been that those secondhand homes bought in part-exchange deals have been difficult to sell by developers, because of the slowdown.

So now it's a case of the biter bit.

PXS, a UK part exchange firm, is offering to buy those unsold part-exchanged homes from developers in desperate need of cash flow.

"It provides immediate release of capital, allows for cash flow planning, negates the need for further writedowns, transfers responsibility of managing secondhand stocks and removes surplus resale properties from balance sheets," says Chris Gregory of PXS. Of course, all this comes at a price.

The developer will have bought a part exchange home at something like 80 per cent of the market value. So 15 months ago a £200,000 property may have been bought for £160,000. The downturn has wiped 20 per cent from values since then, so the home is now only worth £160,000 on the open market anyway.

"An eventual sale price of £160,000 would mean a developer receives £96,000 initially and an extra £40,000 on resale. In total, they would receive £136,000" says Gregory.

Cash-poor developers may jump at this scheme but it means that they – like their original part exchange clients – will have had to settle for less than they hoped. It's a little touch of schadenfreude in the UK market place.