The idea of buying a new build is often appealing to investors and house hunters as it provides them with the opportunity to customise the property to their liking, buy at pre-construction prices, and takes away the stress of entering a bidding war that often comes with buying on the resale market.
So, what is an off-plan property? The term off-plan refers to property which is available for purchase before it has been completed. Typically, you enter into a contract with the developer to buy a property that will complete at a future date.
Buying off-plan has many benefits that can reap great results, but just like any other property purchase, there are risks involved with buying off-plan properties. The following guide will explain the benefits, the process and ways you can protect yourself when it comes to buying off-plan properties.
Why buy off-plan?
There are many perks to investing in an off-plan property. Firstly, you’ll have a selection of plots to choose from so you can pick the one that suits your needs. You may have the option to choose your own flooring, fittings, fixtures etc. or have the flexibility to upgrade and personalise the property. You’ll be the first owner of the property and will have zero or little maintenance to deal with. All new builds come with a builder’s warranty and will usually cover the property for 10 years. Depending on the development, discounts and other incentives such as free furniture packages may be offered which can save you thousands of pounds. Moreover, buying off-plan can be a great investment opportunity as there’s potential for capital growth. Depending on market conditions, the property could increases in value during and after construction. This will give potential investors the option to sell off the property for a profit. Lastly, there may be Government Help-to-Buy Schemes available to first-time buyers who wish to buy off-plan.
The process of buying off-plan
Once you’ve done your research and are happy to proceed with the purchase, you’ll usually be asked to pay a reservation fee. The amount you pay to reserve your chosen plot will depend on the developer but, any amount that you pay will be deducted from your deposit.
You’ll then need to instruct a solicitor to review the contract and guide you through the legal process. The solicitors will have a chance to raise enquiries and ensure you are happy to proceed before exchanging contracts.
When you are ready to proceed, you’ll be asked to pay the deposit (this is typically 10% of the asking price, but can be more) and exchange contracts. Once contracts are exchanged you’re legally liable to complete the purchase.
Closer to completion, you need to ensure your finances are in order so you can finalise the purchase when the build is finished. You’ll have the opportunity to arrange your mortgage at this stage if you need one.
When construction is completed, the developer will serve notice to complete. You’ll then pay the remainder of the purchase price and prepare to either move in or rent out your new property.
Off-plan purchase risks and how to protect yourself
Like any other investment, there are risks involved with purchasing an off-plan property. Although you cannot completely eliminate the risks, there are ways you can protect yourself and minimise those risk.
If you’re planning on selling the property shortly after completion, you could research and monitor the market to ensure you’re making an informed decision, because prices won’t rise forever and you might find yourself in a falling market. Unless you’re a cash buyer, you’ll need to arrange your mortgage. Not all lenders are willing to offer off-plan mortgages so your options may be limited. it’s recommended to consult with a mortgage specialist prior to committing to the purchase to ensure you understand and meet the criteria. Furthermore, to protect your deposit in the event the developer goes bust, ensure your deposit is protected by an insurance policy and always research the developer and their track record before committing to the purchase. Lastly, there’s always a chance of a delay in construction. However, the contract will include a ‘long stop’ date and if the developer doesn’t complete by the long stop date, you’ll have the option to pull out and get your deposit back.
Are you considering buying an off-plan property in the UK? You can search for off-plan developments on our site or contact us at 0151 372 0327 to speak with one of our Investment Consultants today!
Mason Verdi is one of the fastest growing, property development & investment companies in the North-West UK. This company started life as sales agents and over the years has evolved into two arms of development and sales. Mason Verdi is a Liverpool based Property developer with track record in development in Liverpool and Manchester, northwest UK.
