By Stephen Maunder
Thinking about buying a house off-plan? Understand the pros, cons and process of buying off-plan property, plus flipping and off-plan mortgage implications.
Buying a house or flat off-plan means buying it before it's been built.
This might sound risky, but in a market where property prices are on the up and more homes are needed, it can have its rewards.
That's why the sight of homebuyers queuing around the block waiting for a show home to open is becoming more commonplace, especially at entry-level city developments.
This trend is likely to continue, too, with government incentive schemes such as Help to Buy equity loans being offered solely on new-builds.
Buying off-plan isn't always straightforward, however. You'll need to do your homework on the developer, and obtaining a mortgage can sometimes be a tricky business.
- For impartial, personal advice on getting a mortgage for an off-plan property, call Which? Mortgage Advisers on 0808 252 7987.
Step-by-step guide to buying off-plan property
- Find a suitable development and speak to a mortgage adviser about your circumstances.
- Reserve a home and pay a reservation fee (sometimes up to £1,000).
- Appoint a conveyancer to deal with the legal side of your house purchase
- Arrange a mortgage. Your mortgage lender will then arrange a surveyor's valuation based on the plans and development specification.
- Complete the paperwork, exchange contracts and pay your deposit.
- In the weeks before the final completion, have a snagging survey conducted to check for any defects.
- Get ready for completion. You'll usually be given two dates - the short stop (the date the developer expects to complete) and the long stop (the date the developer has to complete by).
Find out more: understand the mortgage implications of buying a new-build home.
Pros and cons of buying a house off-plan
The specific advantages and disadvantages of buying off-plan depend largely on the property market in your area - but we've listed some of the main pros and cons below.
|Pros and cons of buying a house off-plan|
|Your new home could be worth significantly more than what you paid for it by the time you move in||The majority of lenders don't offer mortgages designed specifically for off-plan properties|
|You could get a discount of up to 5% - and secure a great plot at some developments||Most mortgage agreements are valid for six months. If your completion date is further in the future, you may have to re-apply|
|It could mean the difference between buying a home and missing out entirely||If property prices change dramatically during the build, the size of the mortgage could change|
|You may be able to personalise your new home with fixtures and fittings||If the size of the mortgage changes it could put your deposit at risk|
|Schemes such as Help to Buy equity loans and the upcoming Starter Homes Initiative are available||Under some circumstances, the developer will sue you if you can't complete|
What else do I need to know?
Because you're buying a home that hasn't been built yet, you'll need to do lots of research on the developer.
First, check out some of their previous developments to see if the finished homes match up to the pictures in the brochure, and research customer satisfaction levels. Many new-build developments have online community forums, so try contacting residents via one of these and asking for honest feedback.
If you're happy to go ahead, ask your property solicitor to make sure the developer has insurance in place to safeguard against them going bust or not completing the development.
It is also important to find out the timeline of the whole project. If the home you're buying is going to be one of the first completed, you'll need to find out about any access issues and disruption, or you could find yourself living on a building site without a road to get you to your house.
The best deals on off-plan property tend to be available to investors and cash buyers who buy multiple properties. If you're a buy-to-let investor, you'll get the best rental yields and capital growth by targeting property investment hotspots with improving transport links, amenities and schools.
'Flipping' happens when a buyer purchases a home off-plan and then attempts to sell it for a profit when the development is completed (or sometimes even before). Investors planning to flip will target their developments carefully and buy when the first properties are released for sale.
Although it's popular with early birds in thriving markets, flipping is very risky as the housing market can change quickly. Even if prices are still rising, if too many investors buy properties in the same types of development, demand can quickly dry up.
Flipping is usually practised by cash buyers as it can be hard to get a mortgage for this type of investment. If you're thinking of flipping, you'll first need to check with the developer and your mortgage lender (if you're not a cash buyer), and work out in advance what you'll do if you can't sell the property.
We would strongly recommend taking financial advice before pursuing this type of investment.
- Last updated: October 2016
- Updated by: Stephen Maunder