New Build - 30% of purchase on completion - negotiable?

berkshireguy

Hi all,

I've recently had an offer on my house which I've accepted - which meant I could finally put an offer on a new build flat I've had my eye on for about 6 months. I was so excited when I went to put an offer in. It was accepted, but as I was about the put the deposit down, the agent informed me that the developer expects 30% of the purchase price on EXCHANGE. Which equates to about £110K.

I have about 20K in savings on top of stamp duty, legal fees, and other moving costs. The rest of my deposit is in equity on my house. This 20K, along with the 10% (around 30K) deposit I'll get from my buyers, it still means I'd need another 60K for exchange.

Is this normal? I always thought deposits on exchange were usually about 10%?

I'm just curious how people generally manage to afford this/what people usually do? The developer is promoting help to buy for first time buyers - so how on earth would they ever afford this if they are in a position to only have a 5% deposit? I'm not exactly in a bad situation financially, but surely not many people have 110K spare at exchange?

I said I would go and think about it - and think I'm going to ask if it's negotiable, but has anyone ever done this? Or are new build developers generally against this?

I have also looked into other options - eg: bridging loans (as it would only be for a couple of months) - but I haven't a clue where to start. Every one I look at seems to want to to be secured. But how can I secure it against a property already used as security on my current mortgage?when w

I've also thought about going along with it, and then trying negotiate it when we appreciate the exchange date. Not exactly honest, but the rationale being the developer is more likely to negotiate at that point than now when I'm making an offer.

Anyone able to give any guidance/advice?

flashg67

I remember 10% being what I put down, agree that 30% sounds impossible for most. Are they really expecting 30% or that most will have to negotiate - i suspect the latter, if they want to sell many houses.
I'd clarify/negotiate first - could risk losing any reservation/legal fees if they refuse later down the line!
Moneysupemarket has a section on bridging loans & a comparison

berkshireguy

Thanks flashg67 - most people I've mentioned it to agree 30% is excessive.

I will likely negotiate - in the current market I don't think they're selling many, so would seem foolish to lock people out like this.

Tomg84

From my experience its negotiable but our new build developer didn't ask for anything near 30%. We negotiated 0% on exchange but we would have been liable for 10% if we pulled out between exchange and completion.

Is there a reason why they are asking for 30%?

chunkytfg

Tomg84 wrote: »

Is there a reason why they are asking for 30%?

Helps to pay for the other houses they are building.

berkshireguy

Is there a reason why they are asking for 30%?

I don’t know - I didn’t know if it was normal or not. I’ve only ever bought a non new-build property.

Thanks though. Gives me hope for negotiation!

AnotherJoe

Without wishing to needlessly scaremonger, in this time of slowing house purchases, I'd be concerned that the builder was in financial trouble and needed that money to ease their cash flow issues befure they went bust . Because I've never heard of a 30% deposit and more to the point I think very few people have that much cash around. Most struggle getting the 10%.
Alternatively the builder could be doing so well they can really screw the last pennies out of purchasers and don't mind losing 90% of their customers as the other 10% are stinking rich and can pay from spare change down the back of their sofa.
If you do go for it, what happens if the builder goes bust? Could you lose your deposit ? I suggest you ask your solicitor.

berkshireguy

That did cross my mind AnotherJoe - I’m definitely going to consult my solicitor. The block is almost finished though - it’s due to be completed in late February and when you walk around it there doesn’t look like there’s much to do so I’m not so worried about that.

But definitely something to think about.

AnotherJoe

berkshireguy wrote: »

That did cross my mind AnotherJoe - I’m definitely going to consult my solicitor. The block is almost finished though - it’s due to be completed in late February and when you walk around it there doesn’t look like there’s much to do so I’m not so worried about that.

But definitely something to think about.

I think it's not at all uncommon for builders to run low on money near the end of a development, the money often only turns positive towards the end. This would classically be their most vulnerable time.

eddddy

berkshireguy wrote: »

as I was about the put the deposit down, the agent informed me that the developer expects 30% of the purchase price on EXCHANGE. Which equates to about £110K.

For a 'normal' property purchase, you pay 10% deposit on exchange, which is held by the solicitor - I suspect this 30% goes to the developer.

Do any of the sales documents use the word "investment"?

Is it 30% on exchange and 70% on completion? Or are there other payments in between?

You will be essentially lending/investing £110k with a developer (who doesn't have enough money of their own to build the development).

If you can't afford to lose £110k, think carefully about this.

If I was lending somebody £110k, I would want to make a lot of checks on their financial stability, track record etc, first. If they go bust, you could lose it all.

Here's an example of a company that may be similar, who collected deposits from 500 people, then went bust: http://ukbusinessproperty.co.uk/news/dylan-hartley-residential-collapses-with-debts-of-a-100-million

AnotherJoe

eddddy wrote: »

If I was lending somebody £110k, I would want to make a lot of checks on their financial stability, track record etc, first. If they go bust, you [STRIKE]could[/STRIKE]will lose it all.

Fixed the typo.


FWIW, if I was lending somebody £110k, I also would want to make a lot of checks on their financial stability, track record etc, first. And then I'd tell them to take a long walk off a short pier.