The effect of the recent recession on new homes builders has been well documented, but signs are that the concept of buying a home ‘off-plan’ has made a comeback. The Government-backed mortgage scheme or help to buy scheme has two parts, an equity loan and a mortgage guarantee scheme. The equity loan scheme is only available for newly built homes. The Government’s Help to buy scheme is therefore attributed by many in increasing the demand for new builds. The equity loan homes are on new build developments where the Homes and Communities Agency has a registration agreement with the house builder.This government initiative provides a loan of up to 20 per cent of the purchase value that the borrower can use to boost their deposit and access lower mortgage rates. Interest only starts to build after five years. Participants in the help to buy scheme can reserve an off plan property at any time there is a condition however that they need to complete the sale within six months from the exchange of contracts.
This Government enterprise is also credited with increasing the number of homes being built. According to data provided by the government, there were 36,450 new house builds in Q1 of 2014, up from 32,940 starts in Q4 of 2013. Another area that has seen a good level of transactions in the new build market is the student accommodation market.
So what are the pros and cons of buying off plan property?
Price, when selling off plan projects, developers often release in phases and purchasers committing to the purchase in the earlier phases should be able to secure a good price. Another advantage of agreeing to purchase early is the opportunity to choose the position of the property in the development. Whether buying as a home or investment an early purchaser is normally also able to choose their finishing etc. Purchasers should check and confirm however what will be included in the price when you commit to buy the off plan property.
Timing, when agreeing the purchase there should be a targeted completion date and this should be reflected in the contract. This date may drift due to unforeseen circumstances,therefore in the contract there should be a backstop date that gives an absolute deadline with penalties or termination options. Insurance is a good idea in case the new home builder experiences problems or financial difficulties during the period of the build.
One advantage of a new build or off plan property is that you should acquire it in an excellent condition which should appeal to tenants. Many new properties also come with a NHBC guarantee or similar but it is always a good idea to look at other properties the builder has built to get an idea of quality, finish etc.
Research however is essential and not just that provide by the developer. You need to ensure that the off plan property is worth what you have paid for it at the end of the build and not less. Looking at the competition is a good idea i.e. what else may be built during the build period. This is important both for the home owner for values and also for investor for rentals.
If you are looking to take finance for your purchase, you will need to make the lender aware you are buying an off plan property and ensure that this finance is in place. If you are unable to supply the funds at completion to complete your purchase then you will face penalties such as the loss of your deposit.
It is important that an independent solicitor acts for you when buying off plan property . Investment Property Consults work with a group of industry professionals including specialist solicitors , accountants and finance houses that can assist and guide those looking to buy an off plan property as an investment. We have access to a number of opportunities suitable for those looking to buy off plan properties in a number of different asset classes.