Buying Off-Plan: Tips for a Hassle-Free Experience
- AuthorNick Fielding
An "off-plan" property refers to a property that is sold before it is completed or even constructed. Essentially, buyers purchase the property based on the design or plans, rather than the finished product. In other words, the property is bought "off the plan" of what will be built in the future. Buying a new build property "off-plan" can be a smart investment for those looking to own a brand-new home with modern features and energy efficiency.
In this blog, we'll walk you through the seven steps to buying off-plan, providing helpful tips and insights along the way.
Step 1: Find Out If You Can
The first step in buying off-plan is to determine if you can afford it. You will need to speak with a mortgage broker to ensure that you can borrow the funds you require. This is important because most developers will require a deposit of at least 5-10% of the purchase price when you reserve the property.
You'll also need to ensure that the development is in the region where you wish to live. Make sure you do your research on the area, looking at factors such as schools, transport links, and local amenities.
Step 2: Reserve A Home
Once you've found the property you want and know you can afford it, you need to reserve it. This involves paying a reservation fee, which can be as low as £99 but is normally around £1,000.
It's important to note that this fee can be non-refundable, depending on the Developer's terms and conditions, so make sure you're certain about your decision before you pay it. The reservation fee will be deducted from the purchase price of the property when you exchange contracts.
Step 3: Get Legal Help
To manage the legal procedures involved in purchasing your home, it's necessary to appoint a solicitor or conveyancer. At Chattertons, we will handle the legal process, including the contract of sale, transferring ownership, and handling the payment of stamp duty.
It's crucial to ascertain if the property is leasehold or freehold and understand the practical implications of each. Additionally, ensure that your conveyancer includes all of your requirements, which encompass everything you anticipate being incorporated in the property, in the contract.
Step 4: Arrange Your Finances
If you intend to buy a new-build property and are not paying in cash, you should start the process of applying for a new-build mortgage. It might be advantageous to engage a mortgage broker to help you find the most suitable option for your particular situation.
Some lenders may offer incentives, such as cashback or a contribution towards legal fees. Make sure you do your research and compare deals to ensure you get the best option for you.
Step 5: Exchanging Contracts Off-Plan
After finishing all the necessary documentation, the next step is exchanging contracts and paying your deposit, which typically occurs within 28 - 46 days of paying the reservation fee. Following that, there will be an extended waiting period before step six, when your new home is constructed.
It's important to keep in touch with the developer during this time, confirming that they are adhering to the agreed-upon specifications. You should also ensure that you have the necessary insurance in place to protect your deposit and any payments made in advance.
Step 6: Check Your Home Is Finished
While some developers may not permit buyers to inspect the property and carry out a snagging report before completion, you can contest this.
Whether you choose to examine the property yourself, or engage a surveyor to conduct an inspection, or enlist the services of a snagging inspector, it's critical to ensure that the property has been finished to an acceptable standard. Any issues should be reported to the developer before you complete the purchase.
Step 7: Completion
When purchasing a property from a developer, you may be provided with two different dates for its completion. The first is the estimated completion date, which is the developer's anticipated completion date. The second is the long stop date, which is the date the property must be complete by
Getting A Mortgage When Buying Off-Plan
Once you receive a mortgage offer, it is typically only valid for six months, and some lenders may extend it for a brief period. However, you may need to reapply if the offer expires. By the time you exchange contracts, you are likely committed to the purchase. It's advisable to negotiate a get-out clause before exchanging that allows you to withdraw and receive your deposit if you're unable to obtain funding despite reasonable efforts.
Ideally, there shouldn't be a six-month gap between exchanging contracts and moving into your new home. To avoid any confusion, ensure that you have a clear understanding of the construction timeline and stay in touch with the developer.
When purchasing off-plan, lenders often require a property valuation during the mortgage offer stage and another once the property is completed. If the valuation falls short of the purchase price, you may be left with a shortfall. Your options include challenging the valuation, negotiating a reduction in the purchase price with the developer to match the lender's valuation or covering the difference yourself.
Exchanging Contracts Off-Plan
After paying your reservation fee, you will need to act fast as some developers require exchange of contracts within as little as 28 days. It is important to quickly engage a solicitor or conveyancer, ideally with experience working on similar developments, who can ask the right questions on your behalf. You may use the developer’s recommended solicitor or instruct your own. As part of the exchange process, you will also be required to pay a deposit, typically 10% of the purchase price. Keep in mind that exchange of contracts represents a legally binding commitment to the purchase, so it may be worth discussing with your solicitor whether to include any early exit clauses in case of delays in the build process.
Buying Off-Plan and Stamp Duty
When you complete the purchase of your home, you will be required to pay stamp duty. The amount you pay is determined by the price you agreed with the developer when you reserved the property. If you are a first-time buyer purchasing a property for less than £300,000, you will not have to pay stamp duty. To calculate the amount you will owe, you can use the stamp duty calculator provided by the government. (https://www.tax.service.gov.uk/calculate-stamp-duty-land-tax/#/intro).
Find out more: Is "Off-Plan" a Good Plan?
If you require further advice regarding purchasing an off-plan property, or any other property, please contact Chattertons' Residential Conveyancing Department or Land Developments and New Homes Team.
Whilst every effort has been made to ensure that it is correct at the time of first publication it may not be updated, even if the law changes. It is not intended to be specific legal advice and cannot be relied on as such. Chattertons are not responsible for any action taken or not taken as a result of this blog.