Are you tempted to snap up a new home before it is built? We outline the risks involved and the possible rewards
Viewing a home in person, the traditional way, will never go out of style, but there is an increasing willingness to strike a deal on a property that has yet to be built and that can be seen only with the aid of an Oculus Rift virtual reality headset. Not so long ago, buying off plan — agreeing to purchase a property on the basis of architectural plans, computer-generated images and a show home — was a route taken only by investors. Such buyers often sold or “flipped” the property before the completion to other investors.
However, the housing shortgage, and increased demand for new-build properties kick-started by government schemes such as Help to Buy, have pushed others into off-plan buying. Owner-occupiers are now acquiring homes this way. At Fabrica’s Keybridge scheme in Vauxhall, south London, 70 to 80 per cent of the 106 homes so far sold off plan are to owner-occupiers.
This is not just a trend in London and the southeast, says Stuart Law of Assetz, the Manchester property investment business: “It’s happening in most parts of the UK because there is an imbalance between supply and demand. The focus in the north of England is on small housing estates; you can guarantee that all the best homes will be bought before the sales and marketing suite is up. It started two years ago and it has become endemic; developers are building better-quality family houses and mortgage deals have become cheaper, which has helped push up demand.”
So what does buying off plan involve? We answer your questions.
Surely there’s a risk involved?
Buying a property before it is built is a gamble because prices may fall between the time you agree a price for the home and its completion. If the property you buy is no longer worth the agreed price, then you may not be able to secure a loan for the full amount — which you are still obliged to pay. Off-plan buyers and investors who flipped property — when you buy and sell a property multiple times before it is completed — were caught out this way during the recession. However, buyers are once more flipping properties on larger schemes; this activity can put downward pressure on the prices of properties in the same scheme that are coming to market for the first time. Rightmove is listing a number of off-plan flats in the Nine Elms area which appear to be flip properties.
What’s the upside?
If you buy off plan in a rising market, your property could increase in value by the time you complete on the sale. Getting in early has other advantages; you have first choice of the units, they could be more affordable than properties that are released at later stages, and you could possibly choose different finishes for the interior.
How does the system work?
The buying process varies but buyers typically pay a deposit of about £2,000 (usually non-refundable) to secure the property and then pay 10 per cent of the property’s value 21 days later (sometimes developers will ask for an additional 10 per cent further down the line). The remaining balance is paid on completion. Mortgage offers are typically valid for three to six months but buyers should be “aware that delays are common when buying a new-build property and sometimes buyers have to ask for an extension to the mortgage offer”, says Aaron Strutt, of Trinity Financial, the mortgage broker. “Some lenders may ask for updated bank statements and payslips before they extend the offer and they may re-inspect the property to make sure the valuation still stacks up.”
Developers still use models and computer-generated images (CGI) but interactive media is now an essential tool. At Telford’s marketing suites, prospective buyers can take a virtual tour of the exact flat they are looking to buy in CGI, with an Oculus Rift headset. Nick Vaughan, of Savills’ London residential development sales team, says that new technology has made the process of buying off plan easier. “It is now easier to convey what the home will be like when it is built.” However, David Campbell, of Telford Homes, adds: “A good show flat is still essential as it allows buyers to see and feel the quality of fixtures and fittings.”
‘Check the service charges’
One of the main reasons why Becki Pedley decided take the off-plan route was because it gave her “breathing space to sort out her finances”. Pedley, 28, bought a one-bedroom flat in Telford’s Boatyard scheme in Canary Wharf, east London, 15 months before it was ready. She says: “I didn’t have to apply for a mortgage immediately so it meant that I could carry on saving for my deposit. It also gave me more time to sell my property.”
Pedley — who applied for a mortgage three months before the completion due date — says that it is crucial that buyers understand every aspect of the buying process and what they are buying. “My advice would be to buy from a reputable developer; it’s a good idea to look at other schemes so you can see their standard of finishes,” she says. “Double check the service charges and make sure you’re happy with the broadband provider.”
David Campbell, of Telford Homes, adds: “Find out what the developer is offering and get as much detail as possible. Make sure [the developer] is putting in the brands that they are advertising in your home and not ‘dumbing down’ the specification.”