Off Plan New Build - 10% Deposit

LilLloyd94

Hi there -

I am looking at reserving an off plan new build flat. I am a first time buyer so very new to this. I learned today that if I reserve, I will exchange within three weeks and have to put down the 10% deposit. However, the new build will not be complete for another 11 months at the earliest and possibly as long as 18 months.

My concern is - for instance - if something happens outside of my control such as a recession which could result in the bank no longer extending funding near the time of completion or me losing my job, I would not be able to complete. Under these circumstances, I am told I would lose the full 10% deposit and also the developer may sue me up to bankruptcy. They told me not to worry and that I could nominate the contract to someone else and return funds that way in those circumstances.

Does anyone have any experience of this? Knowing this has totally put me off reserving the property and for now at least, I have completely withdrawn from the process. It just seems crazy to me that someone would sign up to losing such a huge amount of money (i.e. in my case well over £30,000) if something unforeseen happened in 18 months. Is there really no protection at all against this? Feels like the developer will just screw me and I have no rights.

Any help / advice?

asm89

I'm guessing you are buying in London?

Is the flat going to be in a block over 6 floors...if so, take a look at the mortgage & endowments board, a couple threads on cladding. Banks aren't lending on flats right now because of fire safety concerns. Even buildings that are brand new are having issues. It could be that it takes a while for you to get a mortgage offer in this case. Not sure of the approach on buildings that are still being developed, ground up - but i imagine they won't lend until the developer certifies the materials being used etc.

Without a mortgage offer, you won't be able to exchange. Given all that's going on with fire safety/cladding issues - you holding off reserving won't be an issue. I imagine there'll still be plenty flats available to reserve in the new year.

Your solicitor can also try to negotiate a smaller deposit at exchange. It doesn't have to be 10% but it'll likely be at least 5%

eddddy

As you suggest, there are some risks.

I don't thank many (any?) lenders would give a mortgage offer that is good for 18 months. So you'll probably have to exchange contracts with no mortgage offer in place.

If property prices tumble, or you lose your job etc, after you exchange contracts, you might be unable to get the mortgage you need.

As you suggest, if you can't get a mortgage, you won't be able to complete, you'll be in breach of contract - and you'll probably be sued.

Who told you that assigning the contract would solve the problem? (I hope it wasn't a solicitor or mortgage advisor!)

If property prices fall, you'll probably lose even more by assigning the contract, than you would by breaching the contract and getting sued.


(FWIW, a 5% deposit instead of a 10% deposit won't help, if property prices drop. You'd get sued for the same amount either way.)

Thrugelmir

LilLloyd94 wrote: »

Is there really no protection at all against this? Feels like the developer will just screw me and I have no rights.

You either have to accept the risks involved or walk away. Not a pic'n'mix where you change your mind on a whim. You'll be entering a legally binding contract for which breaking the penalties are well established in law. No one is playing games.

asm89

eddddy wrote: »

As you suggest, there are some risks.

I don't thank many (any?) lenders would give a mortgage offer that is good for 18 months. So you'll probably have to exchange contracts with no mortgage offer in place.

If property prices tumble, or you lose your job etc, after you exchange contracts, you might be unable to get the mortgage you need.

As you suggest, if you can't get a mortgage, you won't be able to complete, you'll be in breach of contract - and you'll probably be sued.

Who told you that assigning the contract would solve the problem? (I hope it wasn't a solicitor or mortgage advisor!)

If property prices fall, you'll probably lose even more by assigning the contract, than you would by breaching the contract and getting sued.


(FWIW, a 5% deposit instead of a 10% deposit won't help, if property prices drop. You'd get sued for the same amount either way.)

Yeah, new build mortgage offers are good for 6/7 months but you have to apply to renew the offer, which involves another credit check etc. So they do issue them for off plan properties on this basis. Exchanging without a mortgage offer isn't normally done? Further risk?

haras_nosirrah

I have a client who reserved a property in Feb for a nov completion. Mortgage offer expired once but we were able to renew it. They exchanged in may

All fine until Sept. Mrs worked for Thomas cook.

The lender searched out all Thomas cook workers and revoked the offer. With a lot of hard work and persuasion (it was technically outside of affordability by 30k on just his income) I managed to get the lender to honour the offer. This was helped by him being the main earner by a long way and them having saved her salary for a year and their rent being higher than their new mortgage will be.

Having just been through this with a client I would say it is far too early to reserve. At 18 months you won't have a mortgage offer that will be valid. 12 months is the earliest you can do and have a valid offer (6 months plus 1 extension) but even this is a risk.

Personally I would say under 6 months takes a lot of the risk away.

AnotherJoe

LilLloyd94 wrote: »

Hi there -

I am looking at reserving an off plan new build flat. I am a first time buyer so very new to this. I learned today that if I reserve, I will exchange within three weeks and have to put down the 10% deposit. However, the new build will not be complete for another 11 months at the earliest and possibly as long as 18 months.

My concern is - for instance - if something happens outside of my control such as a recession which could result in the bank no longer extending funding near the time of completion or me losing my job, I would not be able to complete. Under these circumstances, I am told I would lose the full 10% deposit and also the developer may sue me up to bankruptcy. They told me not to worry and that I could nominate the contract to someone else and return funds that way in those circumstances.

Does anyone have any experience of this? Knowing this has totally put me off reserving the property and for now at least, I have completely withdrawn from the process. It just seems crazy to me that someone would sign up to losing such a huge amount of money (i.e. in my case well over £30,000) if something unforeseen happened in 18 months. Is there really no protection at all against this? Feels like the developer will just screw me and I have no rights.

Any help / advice?

Even if you don't lose your job, the other risk over such a period is a significant fall in house prices, could be a double whammy, you are locked into a very high price and your lender may reconsider their offer and make it unaffordable for you.
I think there's enough here for you to be walking away