Exchange of Contracts doubts/risks for a non-complete new build

Gulpiyuri

Hi there,

I am a first time buyer and found a new build flat (estimated completion: June, which it looks a bit optimistic for me) I would like to go for.

Apart of the reservation fee (all clear here), I am required to exchange contracts within 21 days (is it normal this “urgency” when the flat is not ready?) and put there a deposit of 10% of the property value (which I also understand is common practice) on the solicitor’s holding account

The developer “encourages” me to use one of their solicitors, as if I do so I would get some flat fittings/extra for free plus their solicitors already are up to speed with the procedure for this particular development.

Here is where my doubts came…

• As per the 10% deposit on the solicitor´s holding account, do I get any receipt/proof from the solicitor that that payment is a deposit for a new property? In case things go wrong, they are suppose to give it back to me but they could always argue the payment was for “something else” (unless I have some kind of contract/receipt)
• Once I put that money on the holding account, can I get it back if something happens before the 21-days exchange?
• My mortgage AIP agreement in principle is valid for 3 months, so if the developer completes after June, I have to request a new mortgage. What happens if I don´t get the mortgage by then? (worst case scenario, I know) I guess I would lose my money (10% deposit), wouldn’t I?
• If by any reason the developers (it’s a large firm, but nowadays no one is safe) go bust and can´t complete the building, what happens to my money?

Any recommendation/advice on this would be helpful!

Thank you

poppysarah

Gulpiyuri wrote: »

Hi there,

Apart of the reservation fee (all clear here), I am required to exchange contracts within 21 days (is it normal this “urgency” when the flat is not ready?)

Look at other non-new build properties.

Compare floor space by looking at EPC and work out which is best value.

The rush is to tie you into something you might regret but won't be able to do anything about.

Walk away from anyone who is rushing you.

New builds have a premium for being new. Which vanishes when you move in. Like a new car devalues when you buy it.

spud211

Firstly - think hard about buying that new build flat. They look nice and shiny etc..but there are 3 major issues that you have to be sure about. Forget people moaning about new build premiums - we all know about that and if looking at a new build you don't care, its worth the premium IMO.

1) Resale will be incredibly difficult, unless your area is very very short of flats. By incredibly difficult I mean nearly impossible unless you drop the price massively. So, plan to live there for a long time if you go ahead.
2) There is a very high chance that some of the flats will be rentals, and that at least 10% will be DSS tenants. Not always a problem, but it can lead to issues in the future when landlords stop caring about how the property is maintained. Just something to be aware of.
3) You need a very high deposit for a new build flat (usually 30% on completion). Not an issue in itself as the more you can contribute as a deposit the better anyway, but again, be aware of this.

If you still want to go ahead, then read on and i'll answer your queries.

21 day exchange is totally normal on a newbuild, developers will always tie you down here, it's just a fact of buying new.

Proof of deposit - yes you will be exchanging contracts at the point of paying your deposit, and your solicitor will give you a copy. So you have proof of what there money is for and where it went.

Until you actually exchange - that money is still yours and you can request it back if you need to. You may lose a little on fees, but confirm with your solicitor (it varies).

Ref your AIP - yes you could fail to get a new mortgage and therefore lose your deposit. This can and does happen - but don't let it scare you. Speak to your financial advisor and also keep the lender informed, in the vast majority of cases they will extend or renew the AIP (my lender extended by 4 months for me). If your credit is not in the best of shape though you may struggle. Be VERY careful with your spending until you have completed - that means no large purchases, no new credit cards etc..nothing that could make you a bad risk.

If the developers go bust it will be up to the administrators what happens - but yes you could potentially lose the money, although it's unlikely.

Using the developers solicitors etc is usually OK if you do a bit of comparison first on the fees. Sometimes they try to push you to expensive ones when there is no need..so check that out first.

Finally - this is a new build flat, something even harder to shift than a new build house, so all developers will give you a hefty discount on them. I bought a NB house in the end but nearly went for a penthouse apartment..negotiated down from £130 to £95k!! Didn't buy as I realised that newbuild flats were a stupid investment comapred to a house (who wants £1k+ management fees..) but if you push, they will drop!

Good luck whatever you decide.

ruggedtoast

Gulpiyuri wrote: »

• My mortgage AIP agreement in principle is valid for 3 months, so if the developer completes after June, I have to request a new mortgage. What happens if I don´t get the mortgage by then? (worst case scenario, I know) I guess I would lose my money (10% deposit), wouldn’t I?

Worst case scenario is you lose your deposit, are sued for every day you fail to complete the purchase, are billed for the developers re-marketing costs, and are left with a massive bill if / when they eventually sell it.

Gulpiyuri

Thank you spud, poppysarah and ruggedtoast for all your interesting comments J

Yes, I am aware of the premium factor when it comes to a new build, however there are other good advantages to compensate that and with the flat being in London, it looks the scenario coudl be different to other parts of the UK. I will also take consideration of your other remarks.

If anyone else here have been in a similar situation, I am pleased to listen to them

Cheers