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Purchasing a new home off-plan with Help to Buy 

Posted 21 January 2016 by Keith Osborne

If you're interested in purchasing a new build you may consider buying off-plan. Choosing an off plan has advantages, as you can have greater choice of plots and can choose the best one, such as south-facing garden. But what if you want to use Help to Buy scheme?

While it is available for off-plan purchases, there are limitations under Help to Buy, and as with any property purchase you have to consider the pros and cons carefully.

One condition of Help to Buy is that the equity loan part of scheme is only available on new builds. You can use the scheme to reserve a property from a participating developer with only a 5% deposit.

In addition, you could find that your property is worth more by the time it is completed, meaning that you get even more for your money than you could have afforded without Help to Buy. However, you can't take advantage of this increase unless you sell the home. Besides, if you buy under the equity loan scheme you do have to pay back the loan - and if the value of the house increases, so will the amount you have to repay.

However, there are potentially major pitfalls in buying off-plan. Property prices could fall between the time you commit to buying and the property being completed. You will still have to pay the higher price, yet your lender will only provide a mortgage based on the reduced price, meaning that you will then have to find the extra money somehow.

Also, you will be committed to the purchase and have to pay a deposit. This could be at risk if the property takes longer than expected to be ready and your mortgage offer expires. At worst, if you are unable to follow through with the purchase the developer could take legal action against you.

Another limitation of the scheme is that only certain lenders are taking part. You will only have a month to sort out your mortgage and exchange contracts once you pay the reservation fee. So if you buy off-plan, this will mean paying rent and your mortgage at the same time, unless you can stay with family in the meantime - and mortgage lenders may be reluctant to lend if you have other financial commitments.

It will also stretch your finances if completion of the property is delayed. This could mean your mortgage offer running out before the property is completed.  As a general guide, mortgage offers usually last between three and six months including Help to Buy mortgages. Some lenders may offer longer, up to 12 months, for instance.  If a mortgage offer does run out before property completion then, depending on your lender, it should simply be a case of reapplying.

However, because things can change in that time period, such as your credit rating, so can the mortgage offer given. The best thing is to seek some assurance from your mortgage lender beforehand that, in the case there is indeed a delay in the property being completed, you can still have a renewed mortgage offer on the original terms.

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