A journalist at the Daily Mail is seeking quick thoughts from buying or estate agents and other property experts about the dangers of buying off-plan. No need for an essay, just a few lines will do!
9 responses from the Newspage community
"Buying off-plan can make it difficult to obtain a mortgage as most banks are not geared up to issue a mortgage offer that is valid longer than six months. Some lenders will offer extensions but not all of them so you could find yourself re-applying for the mortgage at a higher rate of interest. If you are one of the first to move in, you could end up living on a building site until the remainder of the plots have been built and moved into. Is that what you want?"
"The most significant and obvious risk is you’ve no idea if you’re going to get what’s promised, and once you’ve exchanged, there’s no way back. Yes new builds and off-plan purchases are covered by building warranties, however the quality of some of the building work is very questionable indeed. Personally as a broker it’s each person's choice if they want to buy off-plan. I personally would never buy off plan because of the never-ending horror stories we hear about it."
There are many unnerving stories that have been told when buying off plan, including rooms and gardens being built smaller than the original dimensions suggested and and even windows missing from certain rooms! Obtaining a mortgage is difficult due to the long gap between reserving the property and it actually being built, as most traditional mortgage offers are only valid for six months. You are expected to exchange contracts quickly, and once this is done there is no going back so always make sure you research the builders in depth and check how set in stone the plans are for the development, as any changes by the builders could really impact the desirability of the new development.
Buying off plan can have advantages but there are great dangers for those who are not experienced in the property market. The main issue is quality of build. If you are not careful you can be involved in protracted and expensive disputes with developers over what they want to hand over to you. Even worse, if you buy a long way before the planned build completion, is the risk of the developer going bust and you lose some money. Don't be rushed into buying a property and make sure you have good independent advisers around you - both legal and property specialists - when you decide.
Clients buying off-plan can get a serious reduction in property price but it comes with a risk. The obvious risk is the property isn't built yet, and the end result can be different to what was expected. A less considered aspect, is that mortgage lenders don't generally like to provide an offer of finance to more than 6 months in advance, which means the sale needs to legally complete within that timeframe. However, there are lenders who specialise in providing longer timeframes, or who are more open to extending the mortgage offer if the build time runs over.
Buying off plan can be great; you can most likely choose the tiles and kitchen being fitted, have the flooring you want installed, get extra sockets fitted where you need them and, in my case at least, choose the front door you wanted. However, from a mortgage point of view at least, the issue is about time. Most builders will want you to exchange contracts within about a month from reserving the property. This makes the sale and purchase legally binding on both parties. For most of us that means having your mortgage offer - and this is where time comes in to it. Your mortgage offer likely has a validity period of six months, so if the property is being bought off-plan that means the developer has six months to complete the build so you can finalise the mortgage and move in. A combination of raw material costs and a shortage of skilled labour means many builders are running over that time frame. So, what does that mean for the buyer? In most cases a lender will allow a mortgage offer to be extended; for some this is simply a phone call, others may want to see some new payslips, or other supporting information to ensure you are still in the same financial position as before. Lenders wont extend offers indefinitely though and at some point they will ask you to change to one of their current mortgage deals (likely to be more costly in the current market), or maybe even start the application process all over again - and of course there is no cast iron guarantee that just because they agreed to the mortgage last time, that they will on a new application...
The issue with buying off-plan is that mortgage offers are normally only valid for 6-9 months for new build properties. It is not uncommon for building work to take longer than the estimated timescale. If the buyers mortgage offer expires due to delays, the lender will likely carry out affordability and credit checks before extending the offer. In some cases, a new application would have to be resubmitted entirely. If the borrowers situation has changed, for example their income has dropped, they may not be able to afford the loan that was previously agreed. The lenders criteria could also have adversely changed meaning the borrower would have to find an alternative solution. The worst case scenario is the borrower would lose their 10% deposit if they had already exchanged.
There is a risk that you are buying a white elephant and the shiny dream property proves to be a nightmare. Either there is are quality issues over the construction or simply it proves to be an undesirable development. We have seen the new build premium narrow but, there remains a risk that your purchase price may not stand the test of time.
The two main disputes that we see from individuals buying off-plan relate to changes to the property build and specification, and delays in completion of the property. In relation to the first issue, it is crucial to understand what the developer is permitted to change under the contract. That extends not just to the property being purchased, but also the surrounding estate development. In respect of delays, whilst sometimes these are cannot be helped, ensuring a sensible longstop date for completion of the property and maintaining good communication with the developer throughout the build process are key.