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

davidmcn

AnotherJoe wrote: »

If you do go for it, what happens if the builder goes bust? Could you lose your deposit ?

Yes, you certainly will. I would presume the only reason they're asking for such a large deposit is because they want to spend it before completion, in which case it's going straight to the developer. Goodness knows why anybody agrees to the deposit not being held by the solicitors when the property is a newbuild, given that developers are the type of vendors most likely to go bust.

kingstreet

berkshireguy wrote: »

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?

On HTB the deposit paid on exchange of contracts cannot be more than 5%.

eddddy

davidmcn wrote: »

Goodness knows why anybody agrees to the deposit not being held by the solicitors when the property is a newbuild, given that developers are the type of vendors most likely to go bust.

Essentially, it's a high-risk unregulated investment. If you understand the risk, and are comfortable with it - I guess that's fine.

The OP is essentially being asked to invest £110k in a development scheme.

If the scheme is successful, the OP gets a cheap property (presumably). If the scheme fails, the OP loses their investment money.

I guess the big problem is that it's not marketed as a high-risk unregulated investment, so people might hand over large chunks of money, without understanding the risks.

SmashedAvacado

They can't use the money to build the property - it sits in their solicitor's client account.

But it does help them finance the build, because the banks lending the builders money will have more comfort that they buyer will complete.

30% is not unusual on off plan flats in london (three installments of 10% over say the 12 months before completion rather than all at once though) - but less usual in the regions. it certainly will be negotiable, particularly if you are a UK buyer - because they will have recourse to you should you not proceed to complete.

ritz55

There are developers out there that expect high deposits on exchange. If that is the case you need to be very careful and check the background of the developer and how they plan on protecting your deposit. These are quiet often small companies who can't self fund so expect you to do so instead.

There is always the risk you may never see your house or your deposit if its not protected properly and the developer closes up shop.

davidmcn

eddddy wrote: »

Essentially, it's a high-risk unregulated investment. If you understand the risk, and are comfortable with it - I guess that's fine.

The OP is essentially being asked to invest £110k in a development scheme.

If the scheme is successful, the OP gets a cheap property (presumably). If the scheme fails, the OP loses their investment money.

I guess the big problem is that it's not marketed as a high-risk unregulated investment, so people might hand over large chunks of money, without understanding the risks.

SmashedAvacado wrote: »

They can't use the money to build the property - it sits in their solicitor's client account.

Pretty sure we've had other threads here where the money was proposed to be going straight to the developer. As eddddy says, fine for "sophisticated" investors perhaps, but I suspect they're trying to ensnare the more naïve buyers.

eddddy

davidmcn wrote: »

Pretty sure we've had other threads here where the money was proposed to be going straight to the developer. As eddddy says, fine for "sophisticated" investors perhaps, but I suspect they're trying to ensnare the more naïve buyers.

Yep - as in the scheme I linked to above: http://ukbusinessproperty.co.uk/news/dylan-hartley-residential-collapses-with-debts-of-a-100-million

In that case 500 people paid deposits of up to £20k (totaling £6.5m), and the developer went bust.

I can't find any news stories about how much the administrators managed to recover for the 'investors' - but I suspect it wasn't much.

Obviously, the property the OP is looking at may not be part of a scheme like this... but I guess they should check.

berkshireguy

Thanks for your responses everyone.

Had a frank discussion with my solicitor and the agent- the deposit on exchange is held with the solicitor. NOT paid directly to the developer.

Also negotiated down to 10%. Happy days!