Buying a New-Build Property Off Plan

Buying off plan involves buying a house or apartment before it has been built. In most cases, you will have to rely on architects' plans, computer generated images and other information provided by the developer. In some cases, though, you may be able to view a show home or part of the development which has already been completed.

‘Buying off plan can be a different experience from a conventional purchase and comes with its own issues. It is therefore important to consult an independent solicitor or conveyancer who specialises in new builds before committing yourself,’ says Ellis Crawford, a Partner in our Residential Property team.

In this article she answers some of your questions about buying off plan.

What are some of the advantages of buying off plan?

Buying off plan lets you acquire a brand-new home. You may even be able to have parts of it customised to your own taste.

Developers are keen to get their projects underway and rely on sales to boost their cash flow, which means prices might even be discounted, or some developers may offer incentives. They may, for example, pay your stamp duty or legal fees, or offer you a furniture package. You should carefully consider the true value of the incentive. Developers may, for example, limit your choice of solicitor to one recommended by them. However, you should choose one who is truly independent and who will always prioritise your interests. Incentives may also affect how much you can borrow as lenders may include them when working out how much they will advance.

What are some of the disadvantages of buying off plan?

The most obvious disadvantage is not seeing the property before you commit to buy. Due diligence will minimise the risk of the developer failing to deliver on their plans. Even so, the completed building could fall short of your expectations.

While you would benefit from any increase in property prices in a rising market, the opposite is true in a falling market. The price will be fixed at the time you agree your purchase. So, the price payable on completion may be higher than the property’s market value at that time. Not only will you have notionally lost money, but this could cause difficulties with your lender if you are borrowing. You may not be able to borrow as much as originally intended.

Some buyers are happy to wait for their new home to be built. For others, though, this delay makes buying off plan unsuitable. Moreover, there is inevitably a degree of uncertainty in any construction project and unplanned delays can be a further issue.

How do you finance buying off plan?

Conventional mortgages might be unsuitable for buying off plan. Most mortgage offers are for a limited period, usually six months, and many developments will take longer than this to complete. Some lenders may extend their offers, but this may only be for a short time and is at their discretion. You should not commit yourself to buying a property without knowing you can fund it; if you cannot complete, you may lose your deposit.

Lenders may require you to provide a higher percentage of the purchase price yourself. Some may also require a revaluation of the property prior to completion. If you plan to take out a mortgage, you should speak to an independent specialist mortgage advisor early on.

Buying off plan often appeals to cash buyers and investors, who are attracted by the possible uplift in property prices during the construction phase (although prices could also fall in this period as mentioned above). Using cash to fund your purchase could also give you more scope to negotiate a discount or other benefits with the developer.

How does the conveyancing process differ when buying off plan?

The basic process is the same, but there are some differences.

First, the developer is likely to require a reservation fee to take the property off the market. The amount varies but is typically around £500-£2,000. This will usually be deducted from the purchase price on completion, but you should check this. The developer is then likely to require exchange of contracts (when you will become legally committed to buy the property) within 28 days. This is a shorter period than a conventional purchase and can present challenges. It is therefore important to instruct a solicitor who is experienced with this type of purchase and who can give you their close personal attention.

Secondly, particular title and legal issues can arise when buying off plan. Your solicitor will need to ensure the proposal and completed build comply with the applicable planning permissions and that it will have adequate rights over any common parts and access. Sometimes there can be a discrepancy between the developer’s promotional material and the legal documentation, and it is essential to clarify this so you know exactly what you will be getting.

Thirdly, the completed property should come with some sort of guarantee. This could be in the form of an NHBC guarantee, which provides cover against certain building defects for a period of 10 years. Alternatively, it could have the benefit of warranties from the contractor and relevant professionals. As well as checking the cover provided, your solicitor will need to ensure their benefit is assigned to you. So, they will also need to understand construction law and practice.

How can I best protect myself when buying off plan?

Proper due diligence is essential when buying off plan. You should, for example, carefully check the developer’s reputation and financial standing. You should also check your deposit is protected in an industry-approved scheme. This should ensure you get your money back if the developer goes bust.

The best way of protecting yourself is to get the correct professional advice. It is always advisable to seek advice early on. This is particularly so when buying off plan as the time between having your offer accepted and exchange of contracts is typically short.

Your solicitor should be experienced in off-plan purchases. They will then be familiar with the issues that can arise and ensure these are fully considered and covered in the documentation. For example, problems can arise where there is a long gap between exchange and completion, and stories in the press have described buyers losing their deposits due to being unable to fund their purchase when it came to completion. This can be a particular risk where there are unexpected delays, and a mortgage offer may have expired. However, a break clause inserted into the sale contract (if the developer will agree), linked to the expiry date of your mortgage offer, can mitigate this.

How we can help

Our solicitors at Sills & Betteridge are experienced in all aspects of conveyancing and have special expertise in new builds and off-plan purchases. Instructing us will ensure your purchase has the best possible chance of success and that there will be no unexpected legal issues to stop you from enjoying your new home.

For further information, please contact Ellis Crawford in the Residential Property team on 01724 702222 or email ECrawford@sillslegal.co.uk. Sills & Betteridge has offices in Lincolnshire, Yorkshire and the East Midlands.