Most people will tell you that settling on the perfect property to buy is challenging enough. So, imagine having to weigh up whether a home really is the one for you, when it doesn’t even exist yet and going for it.
This is known as buying a property ‘off plan’, and it’s a lot more common than many would think. In fact, it’s grown in popularity in recent years, particularly with first time buyers.
So, how does it work?
What is buying ‘off plan’?
Simply put, to buy off plan means to purchase a property before it has completed construction – and in some cases – before building work has even begun.
It can sound a rather daunting and risky prospect, but there are genuine rewards to buying a home this way. The popularity of off plan property purchases has been bolstered by the government’s ‘Help to Buy’ scheme, a program intended to lift first time buyers onto the property ladder. The equity loan, provides would-be buyers with a loan of up to 40% of the purchase value of a home – which can be then used to boost their deposit and access lower mortgage rates in return. This element of Help to Buy is only available on new build properties, many of which will first go on sale before their construction is complete.
While you obviously can’t view the property as it’ll be, most big developers should be able to give you an idea of what to expect from your off plan property. Many will offer show homes for viewing, that are identical or very similar to any your interested in, so that you can get a feel for the space and even some décor inspiration. In the very least, they should provide a pack of computer-generated visuals and detailed floor plans that’ll give you a very clear understanding of what you’re buying.
It isn’t all plain sailing, though. You’ll certainly need to do your research, and there are some unique challenges presented by buying a home in this way.
How do I buy off plan?
There’s no single, rigid process you’ll need to follow when buying off plan. But for things to run as smoothly as possible, your next steps should follow something similar to the below:
Step 1: Begin exploring suitable developments in your desired area. If you plan on using the Help to Buy scheme, check that any developments you’re considering are eligible.
Step 2: Speak to a mortgage advisor about your situation. Heed any advice they give you, and discuss what your options are. You may wish to go one further and acquire a mortgage agreement in principle (AIP). This confirms a mortgage provider is intending to lend to you, and will bolster your standing with developers.
Step 3: Find your perfect off plan home and make your offer. If successful, to hold the property while you get a mortgage in place, you’ll usually be asked to place a reservation fee – this could be as much as £1,000 and is usually non-refundable, so make sure you are absolutely certain that this is the property for you.
Step 4: Appoint a conveyancer to carry out the legal work involved in your property purchase. They’ll get to work checking everything is in order with the development as a whole, and your specific plot. When buying off-plan there is usually a deadline imposed by the developer meaning that you will have to exchange contracts within 28 days of agreeing the sale. It is therefore vital that you are as prepared as possible.
Step 5: As this is happening, agree your mortgage with a provider. If you intend to use the Help to Buy scheme, your provider will guide you through and facilitate this. The lender will then arrange for a valuation, based on the plans and specification of your property.
Step 6: You’ll need to complete any paperwork with the help of your conveyancer within the timescales set by the developer. They’ll then facilitate the exchange of contracts and payment of the deposit.
Step 7: Plan your move in. There’ll be two dates to bear in mind. The first, the ‘build completion date’, is when the developer expects the work to be completed and for you to be able to move in (this will only ever be a best guess). The second is the ‘long-stop date’, and is the date the developer expects to have the property completed by at the latest.
Pros and cons of buying off plan
There are lots of pros and cons to weigh up when it comes to buying new build and off plan. To help you determine if it’s the right option for you, think about some of the below:
- Personalisation. When you buy off plan, you’ll often be able to specify fixtures and fittings yourself, so your home will be exactly as you want it when you move in – no refurbs needed! If you get in on a development early, you’ll even be able to pick a plot you like best.
- Help to Buy and discounting. As mentioned before, the Help to Buy equity loan is available on newly built properties, while developers may offer discounts of up to 5% on market value to lure would-be buyers in. This makes purchasing off plan a very viable way to get onto the property ladder.
- Potential increase in value. Depending on the market, your home could be worth much more than you paid for it by the time you move in. Of course, the opposite could also occur – more on that shortly.
- Guarantees. New build homes come with a 10-year warranty covering structural defects, and any fixtures and fittings included will come with manufacturer warranties of their own.
- No onward chain. When you buy straight from a developer in this way, there’s no upward chain of buyers and sellers who could hold up your completion or cause your purchase to fall through.
- Mortgage challenges. Most lenders don’t offer mortgages designed specifically for off plan properties, meaning it’s likely your mortgage agreement will expire after six months. This can be problematic for off plan purchases as, if there are delays and you can’t complete for some reason, you’ll have to re-apply, possibly ending up with a less favourable product depending on market forces.
- Deposit vulnerability. If you end up not being able to get a further mortgage agreement in place after this and can’t pay the balance yourself, you could lose your deposit altogether and will have to find a new property. In this scenario, you could even be sued by the developer for the difference in price, if they later go on to sell the home for a lower amount.
- Potential decrease in value. This could cause big issues, not least because if prices dip, mortgage lenders may not see your off plan property as a viable investment when it comes to applying or re-applying. As above, this could lead to you losing your deposit and even being sued, if you don’t raise the remaining balance yourself. Similarly if you are paying a ‘premium’ for a new property, you may find that the resale value declines steeply in the first few years.
- Delays. Setbacks in the homebuilding process are common. This brings lots of uncertainty, impacting your living arrangements and could lead to your mortgage offer expiring.
- Teething issues, snagging and disruption. All things new experience teething issues, and your home is no different. When you first move in, you can expect a few headaches, from things not working correctly to trouble getting post delivered. It’s also worth considering that, if your plot is one of the first completed, you may face disruption from construction on the rest of the development for some time yet.
- Unwelcome surprises.No matter how many times you view the show home, nothing can give you a 100% accurate feel for how your finished property will be. You may find that you’re more overlooked by neighbours than you expected, for example, or that a different orientation means your property is darker than you envisioned.
Top tips if you’re buying off plan
Now you’ve got all that to consider, we’ve just a few more tips for you if you:
- Research your developer. Before moving on an off plan property, investigate the developer’s history and reputation. Do they have a habit of delivering projects late? Is their work of a high-standard, or notorious for cut-corners? If you can, speak to residents of their previous schemes in web forums.
- Don’t be swayed by glossy brochures. Outside of the original specification, your developer is free to change finishes as they please.
- Communicate with your mortgage provider. If it looks like your offer may expire due to late delivery of the property, discuss an extension of the offer. Though they’re not obliged to, many lenders will be happy to agree to this.
- Ask the developer about any ongoing disruption. If your property will complete before others in the scheme, demand your developer timetable any continuing disruption and potential interruption to services.
- Arrange a snagging survey. In the days before final completion, have a surveyor inspect your property for problems. Catching them now means you can demand your developer put them right before you move in.
If you’re interested in an off plan property, you’ll need the services of a conveyancer, to help you complete the legal work. See what My Home Move Conveyancing can do for you, when you retrieve a quote today >
Disclaimer: The article above is only a rough guide to give you some idea of the of what is involved with buying a new build property off plan.