With the increase in demand for new homes being fuelled by the government’s ‘Help to Buy’ scheme, demand is exceeding supply and house builders cannot (or will not) build them fast enough. As a result more people are buying ‘off-plan’ to secure their new home. Off-plan is the term used to described buying (reserving) a new home before it is built, purely on the basis of the builder’s brochure, construction plans, specifications or scale models, rather than after viewing the actual property or even a representative show home.
No show home, no problem. Most house builders like to be able to show they have sold a few plots prior to the show home opening. It can give potential buyers confidence and the impression that the development is popular or offers good value. It is common for prices to increase, often quite markedly, when the show home is available to view, as buyers will be able to properly assess the quality and specification of the homes.
“Early bird” or “up-field” reservations.
House builders normally release a limited number of plots at any given time, in certain order. This is because they need the development to be completed in a particular sequence, usually for pricing, presentation, access and perhaps safety reasons. “Early bird” reservations are not strictly the same as buying ‘off-plan’ as you are not actually buying or reserving a particular home, you are pre reserving a right of first refusal once the plot is priced and released for sale. Keep in mind that the prices subsequently released could be higher, as the builder will already have a registered interest in that particular plot. House builders like the early bird system as it gives them the best of both worlds: a list of would-be buyers ready to pounce as soon as plots are released for sale, whilst they can also take full advantage of any price rises in the market since the early-bird reservation.
Advice when buying off-plan
- Ask for and thoroughly read a copy of the Consumer Code for Home Builders before you reserve.
- Ask the right questions.
- Always be sure to get everything in writing. This applies to anyone buying a new home, but especially when buying off plan.
- Make sure you fully understand exactly what it is you are buying and financially committing to.
- Be sure to get a date when construction of your new home will commence. It is a good idea to also ask for an approximate completion date (usually around six months after building work starts.)
- Get independent legal advice. Never ever be even tempted, to use the house builder’s suggested, recommended or specified solicitors. (note: they are not allowed to insist on a particular solicitor) No matter what the sales advisor tells you it is ALWAYS A BAD IDEA to use a house builder’s pet solicitor.
- Visit the site and inspect your plot on a regular basis.
Advantages of buying off-plan
- In a rising market you can fix the price of your new home now and it could rise in value by the time it has been built and you receive the keys.
- You may have an opportunity to see and possibly inspect, (subject to safety considerations) your home being built at the various stages of construction.
- You have the pick of the better plots and have a greater choice.
- You will have the greatest potential opportunity to make various selections and options to personalise the property to your own particular preferences. This may even include having sockets added or repositioned but is very unlikely to include moving walls or other major deviations from the original design. If this is what you want, you would be better off self-building.
Disadvantages of buying off-plan
- The house builder could change the layout and design and allocation (social housing) of nearby homes on the estate, although under the Consumer Code for Home Builders, they are required to inform you if they do.
- Specifications or designs may be downgraded or changed.
- The completed home may end up look nothing like the one in the brochure.
- The finished home will probably feel smaller than you imagined it.
- The house builder could go bust although buyers are protected against this under the NHBC Buildmark warranty.
- You may end up living on a building site as your home may be completed early, out of sequence, to achieve year-end figures. This resulting in the homes around you being worked on, up to 6 days a week, perhaps for several months.
- You will be required to pay a 10% deposit and exchange contracts within 28 days, even though your new home may not even be started for several months. This money is then tied up earning you nothing. Lost interest may be offset against savings made, should prices rise on the development as your home is being built.
- House prices may fall. This could mean you are paying more for your new home than it is worth when it is finally built. This may result in your mortgage offer becoming insufficient or even withdrawn altogether, leaving you committed to buying but without the finance to do so.
- If house prices fall, you could discover you are moved to a more expensive loan as your loan- to-value (LTV) percentage may increase the interest rate charged.
- It can be expensive if you change your circumstances change. The minimum you will lose is your 10% deposit together with any mortgage application fees and legal costs. However, if the house builder is unable to find another buyer and sells the property for less than you agreed, they can still come after you for the shortfall.
- Your mortgage offer may also be withdrawn if you financial circumstances and credit rating change during the time it takes to complete the home.
- If it takes longer than six months to build your home your loan offer may be withdrawn or there could be additional charges for extending it.
Remember, new homes are sold at a premium of between 5% and 10% and older homes would still offer a better return in the long run.