Off Plan Property Insurance?

Apanthesilia

Hello, we are looking to buy a flat and my question is about properly insuring the property. It’s a new build that is due to complete in early 2022, if we exchange now and don’t complete until 2022 how do we ensure the money we’ve put in at exchange is protecting during that time? 

I know the developer has insurance on the building, but if it fell down or something would we just be out the money we put in or would we get some of that back from the developers insurance? Or is that just the risk we take when buying a new build? Any help greatly appreciated!

user1977

You don't complete your purchase until the flat is built, so if it falls down during the construction process that's the developer's problem. From your point of view it's the same risk as anything else which delays the build or causes it not to happen at all.

Apanthesilia

user1977 said:

You don't complete your purchase until the flat is built, so if it falls down during the construction process that's the developer's problem. From your point of view it's the same risk as anything else which delays the build or causes it not to happen at all.

But if it falls down or anything happens and we’ve already paid a deposit is that deposit just lost? Is there anything we can do to protect that deposit like a type of insurance or is this just a risk we take? Thank you!

user1977

Presumably you've got a longstop date in the contract? So you get your deposit back if it hasn't been built by that date (for whatever reason). Assuming (if they're holding your deposit) that the developers are still solvent, of course.

eddddy

There are different types of 'off-plan' purchases.


Option 1
The safest approach is where you pay a 10% deposit on exchange of contracts, and the solicitors hold on to it until completion day. The solicitors are insured, so this is very safe.


Option 2
But sometimes the developer wants the 10% deposit released to them (to save them having to borrow so much money from the bank). In that case, ideally the developer should be participating in an insurance scheme - like NHBC. If the developer is offering a 10 year guarantee from NHBC, that usually includes cover for the deposit.



Option 3
But then there are high-risk 'off-plan' schemes - sometimes called investment schemes. In these cases, you might have to pay large chunks of money as the building progresses. Essentially, you are helping to finance the building of the property.


In my opinion, these schemes/investments are sometimes run by 'dodgy' companies with salespeople who earn massive commissions, and are very high risk. If the developer goes bust, you could lose a lot of money.


Here's an example of a company selling 'off-plan' flats that went bust, with people's deposits ranging from £2k to £53k: https://www.thebusinessdesk.com/northwest/news/16442-dylan-harvey-residential-investors-unlikely-to-see-money-again


You won't be able to take out your own insurance against a developer going bust.