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The Pros And Cons Of Buying Off-Plan

Posted 20 September 2022

What does buying a new home off-plan involve and what are the pros and cons of doing so?

If you buy a home off-plan, it means you are agreeing to purchase before it has been built. The thought of buying a home without seeing it, with construction not even started, may at first seem like a considerable risk, but it isn’t an uncommon type of purchase, particularly in popular and up-and-coming areas.

So, what does buying a new home off-plan involve and what are the pros and cons of doing so?

How to buy a home off-plan

When you’ve discovered an upcoming new home that you would consider buying, and assuming you don’t have the cash to buy it outright, it is a good idea to speak to a mortgage advisor first to make sure you will be able to get the mortgage you need.

If this all goes well, you can then reserve a home, or plot, at pay a reservation fee – this is typically £1,000 but is at the discretion of the developer.

It’s best to appoint a solicitor or conveyancer as soon as possible to ensure that all the legal steps of buying a home are carried out properly. It will be particularly important to get everything you’re expecting from the new home, such as upgrades and any changes to the layout, included in the contract.

You can formally apply for your mortgage. As there will not be a physical property to survey, the lender will work to the surveyor’s valuation based on the developer's plans and the specifications of the development.

When your finances and legal documents are ready, you can exchange contracts and pay your deposit (usually 10% of the price).

Once the property is finished, you should have a snagging check to make sure there are no problems in things like brickwork, painting, pipes, fixtures and fittings, and that any issues that are found are fixed. While it’s unlikely that a housebuilder will allow this to happen before the building is completed, you can ask. You can do the snagging yourself or hire a surveyor or specialist snagging inspector to do it for you.

Advantages of buying off-plan

You’ll get all the benefits of buying a brand new home – the latest building standards in structure and energy efficiency, low maintenance, the ‘blank canvas’ to personalise your home, and the ability to choose from options and upgrades in things like kitchens, flooring, tiling and built-in storage. It also comes with warranties to cover problems that arise after you’ve purchased it.

You could have a larger range of property types to choose from than if you waited for completion. There may only be one or a few of the type you want; you could secure one of the best plots, perhaps with great views or a south-facing garden. Purchasing off-plan means you could get your first choice.

It might provide you with an early profit. If you purchase early, the value of your property could increase significantly before you even move in. For example, if you agree to pay £250,000, and a year later, on completion, the property is worth £270,000, you could sell immediately for a tidy profit.

Developers love selling off-plan as it helps with cash flow and provides a surety that the property is sold. With this in mind, discounts can be available for early off-plan purchases, with the best deals usually reserved for cash buyers and investors buying in bulk. A reduction in price of about 5% is typical.

Disadvantages of buying off-plan

Property prices may fall. If you have agreed to pay £250,000 and the value has slumped to £230,000 at completion, your mortgage provider may get cold feet about lending the amount originally promised, and the developer will still hold you to your contract, which could create a shortfall.

There are relatively few mortgage for off-plan homes and most home loan offers are only valid for six months. If there are delays with the building and the property isn’t finished on time, you may have to re-apply, and if your circumstances have changed, you may find yourself with a property you have committed to buying and a need to secure a new mortgage.

You may lose your deposit if the purchase doesn’t happen.

Plans and brochures don’t always provide a clear picture of views, noise and light. If you are one of the first buyers to move in, you could experience disruption while other properties are being completed.

It can be a battle to get a housebuilder to fix any snagging.

 

Common questions about buying a new home off-plan

Does Stamp Duty apply?

You still have to pay Stamp Duty on off-plan properties.

How do you get a mortgage for an off-plan property?

You apply for a mortgage in the same way you would any property, however, it is a good idea to talk to a mortgage broker who knows lenders that will support your off-plan purchase. As mentioned above, most mortgage offers expire after six months, which may be before the property is completed. If your circumstances change in the meantime, the lender may not be keen to extend the offer, leaving you with a commitment to purchase a property and a new mortgage to find. Some lenders may have special deals for new builds, with longer completion deadlines, so always ask.

Is the price fixed?

Find out if the price is locked at exchange, and, if not, what happens if prices rise or fall before you complete on the sale. And, no matter how big and reputable the developer, ask what happens to your money if they go bust after you’ve exchange contracts, it should be protected in a client money protection account.

Are there any deals available?

The best deals tend to be available to cash buyers and investors, but discounts can be available for early purchases.

What is included in the purchase price?

Find out if any fittings or furnishings are included, as well as any contribution to Stamp Duty.

 

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