First Time Buyer - New build

FlyingByrne

Good morning folks,

Me and my partner are trying to buy our first property. Being from N Ireland and having relocated to the North of England after uni some of the policies are slightly different.

We’re looking to buy a new build David Wilson home, it’s just over 300k using the HTB scheme. I’ve put down the £500 to hold the sight and I’ve heard the 28 days mentioned for ! deposit of 5%.
Maybe I’m missing something, but does the bank not need the 5% for my mortgage and if so why am I paying it to the developer for a property that isn’t currently close to be finished. The 28 say exchanging contracts has me baffled. So I’m hoping someone could shed some simple explanation that I’m clearly missing.

eddddy

FlyingByrne wrote: »

Maybe I’m missing something, but does the bank not need the 5% for my mortgage and if so why am I paying it to the developer for a property that isn’t currently close to be finished. The 28 say exchanging contracts has me baffled. So I’m hoping someone could shed some simple explanation that I’m clearly missing.

No - the bank doesn't need your 5%.

In 28 days time, you will be legally committing to buy a house for £300k. Maybe the house will be ready in 6 months time. The developer wants you to pay a £15k deposit on the house.

(A bit like if you ordered a cake for £100 for 6 months time. The baker might ask you to pay a £5 deposit now, and pay the remaining £95 when the cake is ready.)

So if you 'do a runner' before you complete the house purchase, the developer will have £15k of your money as compensation. (But they will probably sue you for more.)


So 'exchange of contracts' is when you legally commit to buy the house. You can't change your mind after that (without losing a lot of money).

But you can change your mind before 'exchange of contracts', but you'll lose some/all of your £500 reservation fee.

alex_163163

as above you don’t pay your deposit to the bank. The bank is not buying your property for you.
The deposit is the part of the purchase that you are funding with your cold hard cash, rather than the loaned amount from the bank (mortgage).
Your deposit + HTB equity loan + mortgage amount = house price. This is all paid to the vendor.

sal_III

What eddddy said.

Just to add that the 28 days to exchange is a bit of a wishful thinking on part of the developer and they now it, especially with HTB where you have the added complexity of the equity loan checks. Don't get spooked by the number, as soon as you are making progress with your mortgage and HTB applications and proceeding to exchange, they will be happy to extend the "deadline".

Your post shows that you are quite unfamiliar with the matter, so I do hope you have carefully read and considered all of the pros and cons of using a HTB equity loan. This is not free money from the government, it might end up costing you far more than a mortgage. If you can afford to buy without THB equity loan - don't use it.

FlyingByrne

Perfect, Thanks very much.

I’ve asked a few people and probably because I haven’t seen a written answer I couldn’t get my head around it.

Probably a very stupid question!
Thank you

pinkteapot

Some basics of how the money works in the purchase process:

You will have a solicitor. You choose them and they work for you (they'll often also represent the mortgage lender). Money is handed over to the seller on two occasions - some amount as a deposit on exchange of contracts, and the remainder on completion. Some of that money will come from you, some from a mortgage, some may be from other sources like HTB. That money all goes to the solicitor who then pays it to the seller. They'll ask you for your bit, the mortgage lender for the mortgage funds, etc.

One other regular source of confusion for FTBs:

People often think of the cash they're putting into a property as "the deposit". E.g. If I buy a £200k house with £50k cash and a £150k mortgage, I might say I have a £50k deposit.

The deposit that's paid on exchange of contracts is NOT this amount. It's usually 10% of the house price. In this case it sounds like it's 5%. In my example above, a 10% deposit on exchange would be £20k. Come completion, my solicitor would then get £150k from the mortgage company and my remaining £30k to pay the remaining amount of £180k.

Another point on buying new-builds - a whole legal process has to happen before you can exchange contracts. New-build developers always say you have to exchange in 28 days. In reality this often doesn't happen because to exchange that fast would need you and your solicitor to be right on the ball in terms of doing every step as quickly as possible. Even then, it sometimes isn't possible if there are delays with your mortgage being approved, or if the searches (info on the area the solicitor gets from the local council) take a few weeks to come back. If this happens - don't panic. It's perfectly normal for a new-build buyer to take longer than the 28 days to exchange. So long as you're making good progress the builder will be fine.

SouthLondonUser

Are you sure an help to buy newbuild is a good choice?

What is the premium vs a non-help-to-buy, non-newbuild property? There are areas of England where a small two-bed newbuild flat can cost as much as a Victorian 3-bed terraced house. Even taking into account the cost of a refurbishment, there is a strong chance you will NEVER recover that premium.

Have you gone through all the conditions of the lease? Are you fully aware of all the ground rent, management fees etc you will have to pay? Do you know how often the ground rent increases and by how much? Are you aware that you will realistically have no control over management fees and, unless you exercise your right to manage or go for lengthy and expensive litigation, you will basically have no recourse if the managing agent overcharges for a lousy job?

Did you get yourself a good solicitor? Don't go with the developer's pet solicitor and don't be stingy - get a good one and pay accordingly. In fact, a good solicitor is probably more important for a £300k leasehold flat than for a £2m fully detached freehold house! You need your solicitor to explain all the risks you face if the developer goes bust before the house is ready and the sale completed. You also need your solicitor to explain the risks if completion takes forever and, in the meanwhile, your mortgage offer expires or gets withdrawn,

GDB2222

Agree about the solicitor. The 5% deposit is held by the builder's solicitors as stakeholder. It should not be released to the builder until completion.

nik_k

We managed to easily complete within 28 days. Reserved on 7 Sept, Exchanged on 3 Oct. That was with a HTB Equity Loan too. Could have been quicker if all parties had been a bit more proactive.