Buying off plan - mortgage deposit and builders deposit

jones1987

Hi folks,

Wondering if anyone can help me to understand the process for buying off plan in respect of deposits. I've worked hard to save a 30% deposit for a new build valued at £233,000. I understand that when I get the contract to buy off plan, the builder will want a deposit, probably something in the region of 10%. This is fine, but am I right in thinking that when we finally get the mortgage, my LTV won't be as good as 70% because I no longer have 30% of the remainder of the cost of the house (£210,000 (had a 70k deposit but have given builder £23000 so now only have £47000). Is that how it works? thanks in advance!

ap1985

Hi John,


Buying off-plan has its own unique financial challenges.


Most developers will want to see that you have a mortgage finance in place before you exchange contracts. You will also need to pay a deposit of about 5 or 10 per cent at exchange.


However, most lenders will only hold mortgages open for 6 months so if your property takes longer than that to build then you face having to reapply for a mortgage later on. If you can't get one you could then lose your deposit.


Most lenders will also want to do a valuation of the property at the start and the end of the project so your loan size could differ if property values have changed dramatically.

kingstreet

jones1987 wrote: »

Is that how it works?

No. Your LTV is based on all the money you put down, not just what you hand over at completion.

AnotherJoe

jones1987 wrote: »

Hi folks,

Wondering if anyone can help me to understand the process for buying off plan in respect of deposits. I've worked hard to save a 30% deposit for a new build valued at £233,000. I understand that when I get the contract to buy off plan, the builder will want a deposit, probably something in the region of 10%. This is fine, but am I right in thinking that when we finally get the mortgage, my LTV won't be as good as 70% because I no longer have 30% of the remainder of the cost of the house (£210,000 (had a 70k deposit but have given builder £23000 so now only have £47000). Is that how it works?

If that was how it worked, your initial 10% would have disappeared into thin air (or the builders pockets!)

So no, all your contribution is counted. Overall you'll still have paid 30%, just in installments of 10% and 20%.

jones1987

that's reassuring, thank you!