Part exchange - has anyone heard of this?

rio

A local builder is currently offering part exchange on properties that have yet to be built (phase due to be released Easter time). He is offering to do part exchange on these properties now, giving people who take up the offer the option of either renting another of his properties whilst the new ones are built or staying in their present homes until completion. All this sounds a bit odd to me. How would you go about obtaining a mortgage on a property that does not yet exist? We are interested in the houses, right price and in right location for us but would welcome advice on how to proceed. Presumably the builder is looking to exchange on the new houses ASAP and then complete as soon as they are finished. We have heard through other sources that he can't shift houses on his current phase (lovely houses but very small gardens and almost non existant parking) and is renting the majority of them out through a local agency. What do people think he is playing at??

silvercar

Quite common for large builders to offer part-exchange, particularly if a development is not selling well. They install you in the new house, give your place a lick of paint and market that. The development then looks popular making the remaining proerties easier to sell.

Watch out for the valuation they give on your place, may be on the low side. It will also mean you won't get offered many discounts on the new place so stay focused. Advantage is no house chain.

lisyloo

I have done this.
The massive advantage is no chain.
The valuation was slightly low but I don't think we were much worse off considering there were no estate agents fees and we still DID negotiate on the price.

How would you go about obtaining a mortgage on a property that does not yet exist?

If the houses aren't finished when you need to start putting the mortgage in place then the valuers will look at plans and possibly other houses on the development.
They are familiar with doing this and will probably be familiar with the site and the builder.
It shouldn't be a problem.

Presumably the builder is looking to exchange on the new houses ASAP

Yes, any house sat unsold firstly doesn't look good but also is hurting his cash flow. They want to sell them ASAP.

We have heard through other sources that he can't shift houses on his current phase (lovely houses but very small gardens and almost non existant parking)

In which case you should be looking for a discount.
If the houses are not desirable because of garden and lack of parking then even if they suit you then this will affect the resale value.
If they aren't selling and have a potential resale problem AND the builder is desperate then consider putting in a cheeky offer.
The worse they can do is laugh at you but you might get a feel for their bottom price.

rio

Thanks, the plots that we are interested in on the new phase have much larger gardens, almost three times the size of the ones he has yet to sell. Perhaps he has been a bit greedy with his use of land on his previous development and he has now learnt his lesson because he can't shift the houses. But does it strike anyone as odd that he is offering to part exchange and put people into rented accomodation until such time as the new houses are finished? Is he that desperate for a sale!

lisyloo

But does it strike anyone as odd that he is offering to part exchange and put people into rented accomodation until such time as the new houses are finished?

Why do you think this is odd or desperate?

Chains are difficult so he is trying to facilitate the whole thing.
If he moves people into rented accomodation then he can actually sell their part-exchanged house rather than wait so he's gets cash earlier.

The rented accomodation doesn't cost him anything if it's empty anyway.

I presume people are having to pay rent for this and not getting it for free?

To any business cash flow is important so I see this as facilitating a difficult process.

It is fair to say though that builders only go to these lengths if they have to.
If you have a sniff that he's desperate then you should use it to your advantage and bargain hard.

suffolkb

What happens if, for example, you agree to pay £200,000 for a house that isn`t even started yet, and then the long predicted (on this site ) price crash happens. Will you still be committed to pay £200,000 on a house now valued at £175,000?. If your mortgage company would only lend on the new figure, then you could be in trouble. Of course, there may be a big increase in property values in your area and you will be laughing.

rio

We have part exchanged before and moved in once the new house was ready. The bit that concerns us is the offer that we can move into rented accomodation that the builder owns whilst his houses are finished. The houses are only three miles away from where we are now, yet we have had this idea mentioned to us twice by two different agents even though I explained we are happy to stay in our present house for as long as it takes (we are only really moving due to school catchment areas). I could understand why they would make the offer if we were moving up country, but not when we live so locally. I think he may be expecting a price drop and wants to lock people into his deals, but surely he would have to honour the price of our property even if it was above the then market value? We are looking purely at the cost to move, not how much we get for our house, and would like to part ex to save all the hassle.

silvercar

suffolkb wrote:

What happens if, for example, you agree to pay £200,000 for a house that isn`t even started yet, and then the long predicted (on this site ) price crash happens. Will you still be committed to pay £200,000 on a house now valued at £175,000?. If your mortgage company would only lend on the new figure, then you could be in trouble. Of course, there may be a big increase in property values in your area and you will be laughing.

You have two options, lose your deposit and don't buy or pay up.

You could threaten to pull out and see if the builder would negotiate but no guarantee.

It wouldn't be all bad because the builder would be overpaying on their purchase of your house. If your house was selling to the builder at £150k and you were buying at £200k, a 20% drop in value means the prices are £120k and £160k. so the difference you should have had to find is 40k and you've committed to paying £50k.

silvercar

rio wrote:

The bit that concerns us is the offer that we can move into rented accomodation that the builder owns whilst his houses are finished. The houses are only three miles away from where we are now, yet we have had this idea mentioned to us twice by two different agents even though I explained we are happy to stay in our present house for as long as it takes

I guess that the builder wants to improve cashflow and sell your property ASAP.

lisyloo

What happens if, for example, you agree to pay £200,000 for a house that isn`t even started yet, and then the long predicted (on this site ) price crash happens.

Depends at what stage you pull out.
If you pull out before exchange of contracts you are liable for nothing (sometimes there are reservation fees with new build but small fry).

If you pull out after exchange of contracts then you are liable for costs.
At this point you would have to weigh up these costs against the costs of going ahead.

jiblets1

We've part exchanged recently, and we are really happy with it. The price offered for our flat was a little low, but very fair for a "forced sale". We saved ourselves over 2 grand on estate agents fees, and so were then only about a grand down on the price we wanted. As far as I'm concerned we may well have had to drop the price by that much anyway, as our flat wasn't selling.
We are allowed to stay in our flat until we move in to the house, even if the process gets delayed. We have, in effect, been able to exchange contracts in a very short space of time, and we will now be in our house in time to be married 3 months later. Without this offer we would have been potentially months and months more waiting to sell, then a while living in my mothers house, before waiting months again on the other end waiting to buy and move in.
As yet we haven't encountered any problems,and we're really happy. We are moving with Bellway, who are very established. I don't know if using a more localised builder would cause any problems...