New Build Home and Mortgage

Dave2912

Hi Folks,

Been a keen viewer of this site for a while in preparation for getting on the property ladder and finally im in a position to purchase.

I have a couple of issues I'd like cleared up though...

1) I have my eye on a new build 2nd floor apartment which will not be completed until Jan/Feb 2011. Are there any mortgage lenders which will guarantee the mortgage rates I apply for now, even though I may not be completing for 7-8 months?

I'm reluctant to put down my deposit with the developer until I am sure I have a decent mortgage in place but the lenders I have approached will only give me current interest rates if I complete within the next 6 months.

2) The property costs £120k. The property developer will be giving me a 5% (£6000) deposit allowance while I have a personal deposit of 20% (£24000). Will mortgage lenders see this as me needing a 75% LTV mortgage? Or will they deduct the 5% deposit allowance (£6000) from the asking price, making the total property cost £114k, so my £24000 deposit would only be 21%? This obviously makes the LTV ratio and interest rates less favourable.


Any advice will be greatly welcomed.
Dave.

brit1234

Far better waiting till January before you put the deposit down. Mortgage funds will get a lot shorter going up to 2011 and after. You get a mortgage in principle now there is no guareentee you will get it 6 months down the line. This could lead to you by the developer if you can't get funds. Also if you put a deposit down now you are stating you will pay this price, thats bad as prices are now falling. As prices fall up to completion your mortgage lenders survey may offer a lot less.

AMILLIONDOLLARS

A lot of people have bought off plan and have lived to regret it! Berkeley Homes comes to mind. see link http://www.berkeleyhomescollective.com/

Has your builder started building the apartments? If not, the development may, for whatever reason, be subject to delays. This could affect any mortgage deal you may secure eventually. Secondly, the buy to let market is not dead. What percentage of apartments have been sold to Buy to Letters. This could affect your property value and how well the apartments will be maintained in the future. My personal thoughts are to buy brand new at the moment is a receipe for disaster. Wait to see what the Budget brings next week. With all these cuts who knows what the knock on effects will be and you don't want to find yourself tied to sometjing that may well experience a double dip in the market.

Good Luck

AMD

spud211

This is a real concern, but what it really comes down to is how much you want that specific property, and how fast they are *really* selling.

If that is the property that you really really want, then that takes care of the first point. For the second, speak to your solicitor and get them to find out for you - if they are selling fast then you may wish to take the risk and put the money down..but with flats I suspect that they are not really selling as fast as the builders try to tell you. Your solicitor should be able to find this out for you.

If you do go ahead, then all is not lost - lenders *will* extend their offers in many cases (so my solicitor tells me) as long as the market conditions do not change massively. So if interest rates do not shoot up and the value of your flat does not drop massively the you should be fine - your broker should speak to the lender (and also you should, and finally your solicitor) near the offer expiry date to see if they will extend or renew the agreement.

I am in a similar situation, although buying a house on an very popular development where its clear how fast they are selling (people were literally queuing up when they released the houses..madness!). My house will not be ready until December (possbily even jan/feb) yet I have exchanged contracts this week and paid my deposit. Why? Because I love the house, the location and the development and I have not found anything close in this area. I am also confident that my financial position can only improve from where I am now, and can easily afford the mortgage even if rates go up a bit. I also have a LTV of around 25% so should be fairly safe even if my lender refuses to extend the offer.

It is a risk, yes, but if you do your research properly, have a competent solicitor and are in a stable financial position then it is one worth taking.

All that said..new build flats are ten a penny at the moment and I personally only see prices going down..I did consider one a few months back but when the developer started at £120k and then dropped to £80k within a few days of negotiating I saw the warning signs and forgot the idea (plus the idea of management fees is a horrible one!). Be very sure you want a flat before buying - 2 bedroom houses are often priced very similarly but with many better qualities!


edit: oh and on the 5% builders deposit thing - whether this counts or not depends on your lender and that specific product. Santander (whom my offer came from) counted it towards my deposit, but not everyone does. Speak to your broker about this.

Dave2912

Thanks for the opinions guys.

Some further info if it helps with your advice:

The apartment is a 3 bedroom with rather large rooms which has already dropped (before I approached the sales people) from £155,000 to the current £120,000 asking price. I've negotiated a lot of fixtures, fittings and floorings too but im sure the developer must offer this to everyone to make them feel like they've got a good deal.

The developer has also agreed thatI would get back 100% of the reservation fee and deposit if I decide that new mortgage rates in 6months time would be too expensive. This would allow me to walk away from the purchase and not lose any money with them. I would however have spent money on the bank's valuation fee and solicitors fee's.

The developer has kind of started building on the site and the apartment i'm interested in would be one of the first built (the building going on around me isn't a concern). Thus far, only groundworks, roads and foundations have been completed.

I do intend to wait until the budget announcements are made next week. It's too much of an important event to ignore. I just fear that some things in the budget could make it even more difficult to get a mortgage.

Since the apartment development is in a very central area and not many will be built I will admit that i'm very keen to buy. (i'm told most of the first phase have already been sold but you never know whether to believe the sales staff...) I'm making sure I listen to my head more than my heart.

Dave.

spud211

One other thing for you to think about is what happens if they don't sell enough? You complete, move in but they only build say 2 floors and leave the top few as empty shells.

i've seen this situation in a few places that I looked in - not a great situation to be in. Not that i'm trying to put you off - just something to consider.

Dave2912

Thanks again spud, im happy take on board all that you've said.
The apartment i'm looking at actually is the top floor but your point is still valid. I hadn't really considered the possibility of the development being stopped, leaving me in a permanent building site.

Cheers,
Dave.

AMILLIONDOLLARS

I'd get everything in writing, water tight!!!:D before you exchange. Will the developer also give you your money back if the apartment fails valuation?

AMD

Dave2912

Oh yes, if I go for the appartment, i'll make sure I have everything in a legally binding document before handing over any money.
I have been told "You can have all your money back up to 1 month before completion, if you think it will be unaffordable."
As yet there has been no clarification of what "unaffordable" means. Verbally I was told that whatever I deemed as 'unaffordable' would be accepted.

Yorkie1

Dave2912 wrote: »

Oh yes, if I go for the appartment, i'll make sure I have everything in a legally binding document before handing over any money.
I have been told "You can have all your money back up to 1 month before completion, if you think it will be unaffordable."
As yet there has been no clarification of what "unaffordable" means. Verbally I was told that whatever I deemed as 'unaffordable' would be accepted.

The real issue is when you exchange. If you exchange early, then you're legally bound to the contract and I'd want to have very concrete legal advice to the effect that anything in writing along the lines of the bold text effectively released you from the contract.

Kyrae

You might find this thread useful, I put in it some advice I learnt from buying a new build, gives you some ideas for questions to ask etc:

https://forums.moneysavingexpert.com/discussion/comment/31185089#Comment_31185089

When buying we got a clause written into the contract that we could pull out of completion and get our deposit back if our mortgage offer expired and we could not find a new one at a rate we could afford. Took a couple of drafts between our solicitor and the builder before it was worded in a way that really meant we could walk away, but gave us peace of mind. And all worked out fine in the end and we love the house