Buying a new build

BabyStepper

I need some help with something. Me and OH need to move for OH's job and have our home on the market. I've been looking for places to buy and it seems the best we can find is a new development. We've never bought off plan before. I've done some research and I wanted to check I've got this right. 

We need to put down a small deposit (1k) to reserve the home, and then have an actual mortgage agreed around 4-6 weeks later. At this point we are legally bound to buy the property, even though the house is not available for possibly up to a year. The mortgage offer will run out and we'll need to reapply closer to the time. In the meantime, we'll have to have sell our home before we reserve the new place (is that right?) so will need to rent.    

This all looks incredibly dodgy to me. There are so many things that can go wrong I don't even know where to start. Will we be off the property ladder? (Not really, because we're comitted to buy, but we won't have a mortgage so won't be paying it down, and what happens to our equity/deposit in the meantime?) What if the build doesn't finish on time/ever? What if we can't get the mortgage offer renewed when the time comes? Can the builders still sue us even if it's not our fault? We need to move house twice, with all the expense of that? The development we want to move to is very popular and houses are selling fast. I'm thinking they would find another buyer very easily, but again, how can you predict that a year into the future? There are loads of rental properties where we currently live, it should be relatively easy to find a flexible rental agreement, so that's one saving grace.  

I can't believe anyone manages this, and with the economy being how it is, I'm not sure I could handle the stress of it all. However, this is the only house I can get OH interested in and he is very keen. I love the house too but I'm not at all sure about all this stuff that goes with buying a new build. The area is lovely, it would need no cash spent on it (other than the price) and it would be all the size of home we would ever need. So in lots of ways it's perfect. Except for this process that I don't know enough about.  

Anyone tried this recently? Can you offer any advice? Where are the pitfalls? What do I need to look out for? 

Thanks for any help you can offer. 

GDB2222

The builders want you to exchange contracts a year before the house is going to be ready. You’d be mad to do that. As you say, you’ll lose your deposit if you can’t raise a new mortgage. Not the £1k deposit. The whole 10% of the new house deposit. That’s where your equity will be going.  And, not necessarily just your deposit, as you would be liable for any losses in excess of 10%.

As you have worked out, it’s very risky. It also doesn’t solve your housing needs, as you’re going to be renting for a year. More of your equity going there, too.

Surely, it would be better to buy a house that exists already, do a simultaneous sale and purchase, and move?

BigD74

We moved in to our new build property 5 weeks ago. We came out of rented, so unfortunately I don't have any advice on when & how to sell your current property. You are not committed to buying the house we you reserve. You only pay your reservation fee at that point, £1k in your case, and at this point the conveyancing process starts. You can still pull out at any time between reservation and exchange of contracts, although you may loose part of all of your reservation fee and anything you may have spent on solicitors, search fees etc. When you reserve, the builder may require you to show proof that you are able to afford the house, by showing a mortgage decision in principle or talking to the builder's recommended mortgage advisor. 

We had no mortgage decision in place before we reserved, and it took 2 months between reservation and exchange, as mortgage brokers, banks and solicitors were very busy owing to the stamp duty deadline and searches can take a long time to come back. The builder pushed us to exchange, giving us 40 days, but we went as fast as we could. I wouldn't worry too much, because it will take much longer for a new buyer to start the process, even if they are a cash buyer. 

After exchange, the builder should give you an indicative date of when the house is completed. They are now also legally bound to meet that date, and you can pull out if the build is "unreasonably" delayed by the builder. This is very rare though.  

katkatmachine

I don’t think it’s wise to reserve and exchange on the new build whilst you’re still selling your property. Our supposed to be neighbour almost did that. They already had an offer to their flat and at the same time was on the process of exchanging on their new build, then their buyer pulled out. I think Bellway gave them two months to find a new buyer otherwise they will remarket the house again. In the end the time ran out, house was back on the market and we didn’t get to be neighbours at all as they had to pull out. All’s well that ends well for them though, after a few months they managed to finally sell their flat and bought a much larger Taylor Wimpey house that’s almost done so it was perfect timing.

Maybe try to sell your property first, I doubt the developer would even let you reserve the new build house if you still have a property still to sell with no offer received yet. Or maybe you can do express mover or part exchange? Maybe you can look into that. 

Also, about reserving an off plan that won’t be completed in a year, DON’T! New builds are notorious for delays especially now with the pandemic. We needed two mortgage extensions because we had a four month delay! Lucky we managed to complete a day before the final extension ran out! We were so lucky but the stress that we went through was over the roof. Had so many sleepless nights because of it. So yeah, your mortgage offer will definitely run out, I suggest just reserve if the house is estimated to be completed within six months, so even if it gets delayed you can still request for an extension for another 3 months. Good luck. 

davidmcn

BigD74 said:

After exchange, the builder should give you an indicative date of when the house is completed. They are now also legally bound to meet that date, and you can pull out if the build is "unreasonably" delayed by the builder.

Only if the contract says so! And typically it refers to a specific date, rather than something as nebulous as reasonableness.

OldMusicGuy

Like others said, you are not legally bound to buy until you have exchanged contracts. Developers like that to happen within 4 to 6 weeks but they rarely enforce it provided they can see the conveyancing is progressing. Once you exchange contracts you are ;legally bound to buy the property, and at that point the developer will give you two dates, an estimated completion date and a long stop date. The long stop date is usually about 3 months after the estimated completion date, and if they do not make the long stop date, you can then pull out of the deal and get your deposit back. 

However, right now, any date they give you is a hopeful one and cannot be relied upon. There are bound to be delays, we have just bought a new build and all kind of delays have hit our site. Current builds are 3 to 6 months behind schedule. It's only when you exchange contracts that you will get the actual date they think they can finish by. This could be many months after what they are telling you now.

IMO (like others said) it's far too early for you to even contemplate reserving a new build. You should not do this until you have an offer on your house and are pretty certain the sale will go through. Also, if you want a new build and reserve very early, you need to be prepared to go into rented once you have sold your house due to all the likely delays. That's what we did, because tying the sale of our place to the completion of a new build was too difficult.

BabyStepper

Many thanks for your input, everyone. You have all been really helpful. I'm still wondering how on earth anyone manages this, never mind in our current pandemic situation and with everything so unstable. 

We seem to have a buyer for our home. It'll be a few weeks until we know for certain if the sale is certain, but we're optimistic. We need to sell our home as we need to move for OH's work so we're just getting on with it. 

It looks like renting is common for anyone buying new builds that are not finished yet. (Or even started, as in our case.) I just wanted to check that was ordinary and it seems that it is. Neither of us mind renting, it'd be better if we didn't have to but that's how it is.  

I agree one year is far too long to wait. It seems insane. The builders could go bust, we could lose our jobs, the banks may collapse (ok, so I'm prone to worrying...) but really, it's far too long to wait. We've decided not to reserve if it needs to happen that much in advance. 

In an ideal world, a property will become available in the area we've chosen, preferably on the same estate, and we can tie in our sale with the purchase. I've been keeping an eye on the market and there are not many being sold, but there are some. So we just need to keep looking. 

I'm thinking the worst case scenario is that we sell up, nothing becomes available to buy, and we end up off the property ladder for years. I need to go and mull that one over. 

Thanks again everyone. You're appreciated.