Buying a new build property ‘off plan’? what you need to know
Buying a property before it’s been built can have its pitfalls, so be sure to know the facts before you proceed.
What does ‘off plan’ mean?
Buying off plan means buying a new build from a developer before it’s been built. The process has its complications. If you are considering buying off plan here’s what you need to know.
Meet your developer with a clear strategy in mind
So, you’ve seen a show home you love, you’ve see the plan and 3D representation of the property. You like the local area and are impressed with the developer’s track record. You’ve decided to buy off plan.
The first thing you will do is work out a deal on your new home with the developer. As with any seller, the developer will be expecting negotiation, and will probably begin with a higher asking price in anticipation of this.
The difference with buying off plan is that negotiations won’t be solely about the price. At this early stage, the developer may offer you incentives to commit. These incentives may include:
- paying your deposit
- covering your legal fees
- free fixtures and fittings
- free carpets/flooring
- the garden turfed
- stamp duty paid
The developer may also encourage you to use their preferred solicitor, but it’s advisable to get your own. Choosing your own conveyancing solicitor will avoid any potential conflict of interest.
In an age of of leasehold houses and spiraling ground rents, you need a solicitor who is acting in you, the buyer's, best interests alone.
Ideally you should have a solicitor lined up at the point you agree to buy the property.
Recommended reading: Don't get caught in the leasehold property trap
Are you being offered a warranty?
Developer incentives can be very tempting and can get you a great deal, but focus on the long term: when buying a new build, you should expect a third party warranty on your home for up to ten years.
Surprising as it may sound not all developers offer a warranty, and this is a crucial point. If this isn’t on the table, you ought to be looking elsewhere – this warranty is one of the major benefits of buying a new build.
The majority of developers in the UK will be NHBC (National House-Building Council) registered, but there are other warranty providers such as Zurich, Local Authority Building Control Warranty (LABC) and Premier Guarantee – all of which are equally acceptable.
Contracts are exchanged very early in the process
Once you have decided on a price, your solicitor can begin the conveyancing process in the usual way. On exchange day, you can expect to pay 10% of the value of your home.
The difference when buying off plan is that there is then a long gap (sometimes years) between exchanging contracts and the agreed completion day. This gap can bring complications: a lot can happen within this time.
Your home could be worth more, or less, when you move in
The gap can work in your favour. The time delay makes it possible that your home will be worth more than you paid for it by the time you move in.
On the other hand, if the market declines and consequently your home goes down in value, you may have difficulties securing your mortgage.
Your mortgage lender may decide they can’t lend you as much, as your house is worth less than it was anticipated to be worth once built.
Once the time arrives to formally apply for a mortgage – usually around six months before the completion date – your mortgage lender will take into account the current value of the property, not the sale price agreed with the developer.
Make sure you are financially robust
At the point of exchanging contracts you are legally committing to complete on the property once is has been built.
If you fail to complete you won’t only lose your deposit, but your developer may sue you.
Savvy off plan buyers will have a contingency plan in place in case their personal financial circumstances change.
Contingency plans may include alternative funding sources or being prepared to inject more cash into the deal.
Ensuring that the purchase does not ‘max you out’ is smart as it leaves some margin if the property market declines between exchange and completion.
Buying off plan requires a level of confidence, so equipping yourself with as much knowledge on the process as you can before you begin is essential. Know your finances, do your homework and secure your own property conveyancing solicitor early on.