Paying deposit for off plan new build

cazs

Hi, 

I am currently having thoughts about moving due to the boss saying he's happy for us to work remotely.

I have been looking at a development in progress and it states that you need to pay a reservation fee of a few thousand and then 28 days later they require 10% of the purchase price for exchange of contracts. 

But what I cannot figure out is where that deposit money is supposed to come from. The property I'm looking at would be £550k so the deposit would be £55k. I certainly don't have a spare £55k in my current account so where does one find the money for it if one is not a cash rich investor? 

It's not as if I could sell my current property to get that cash as I need to live in the current flat until the new build would be finished off. 

I feel as though I'm missing something here and am scratching my head a bit. When I bought my first and current flat I paid the despot from my savings which was fine as it was much less and I was living with parents.

For context I think I can sell current flat for 275k (I only have a few thousand left on current mortgage) and the rest of the 550k would come from a big mortgage. The developer I'm looking at is called Blueberry Homes.

Thank you 

Slithery

cazs said:

It's not as if I could sell my current property to get that cash as I need to live in the current flat until the new build would be finished off.

Of course you can, you just sell your property first and then move into a rental. You will then have the cash available for the deposit as well as not being tied into a chain. Chains and new-builds never go together very well for the very reason you are worried about.

Flick85

I’ve been looking at new builds in a similar scenario (need to release equity in current flat to purchase a house) so I’ve been working through these issues recently… and the following is a summary of what I’ve learned…

Basically if you have a place to sell, then buying a new build can be tricky if you need to release the equity to make the purchase work. 

One option that may be available is a part exchange, but you might not get quite the value you’re hoping for for your current property, and not all developers offer that on every plot. But, part exchange usually means that they don’t require any cash deposit, and there’s no estate agent fees. It does also mean you might have less negotiating power on incentives, but for hassle factor, definitely has it’s benefits as you won’t need to move out until your new build is ready.

Otherwise, you can try to find a buyer who might be willing to wait for 6 months to complete. Then, they will be paying 10% on exchange to buy your place (ie 27k) and you can try to see if developer will accept that as a 5%ish deposit, or find some spare cash to top it off to hit the 10% the developer wants. If you were buying a non-new build, you would need to do something similar btw as you usually have to pay a 10% exchange deposit, which is different to the deposit (ie equity) in your home. Essentially, there are 2 meanings of the word deposit, which is very confusing!

Or, as others suggest, find a way to make yourself a cash buyer, through moving in with family/friends or going into temporary rented accommodation. Not ideal, and not always possible of course, but that puts you in the best position with cash available.

Also, if you find yourself wanting to upgrade any of the basics the new build includes, you will probably have to pay for those either in full after exchange (most developers I’ve spoken to are doing this), or put a deposit down for those after exchange and play balance on completion. The show homes are always fit out with top spec upgraded stuff, so watch out for that! And, not all developers include fairly basic things like flooring, or turf, or fencing… so it’s worth checking those carefully.

krusty101

How off plan is it? We reserved a house in September allegedly due for completion in December. They wouldn’t do part ex but we used their scheme whereby they used a third party to manage our sale with a local estate agent. They paid the EA fees. We accepted an offer on ours pretty quickly but the 28 days came and went and the developers did not push at all. Probably because our new build was not on track. They talked vaguely about January which was doable as we thought our sale would go through then. Some enquiries and slow solicitors later and we exchanged and completed in March. 

cazs

Thanks for responses thus far. 

Krusty - it's a multi phase build and they're just finishing phase one I believe and meanwhile have started phase 2 building of which 3 of 21 flats have sold off plan. All 21 in phase 1 sold off plan as per what they say.

Felicity- yes something to keep an eye on for sure, similarly for example they have a virtual tour of a "standard 2 bed" but I cannot match up the layout on the video to any of the floor plans listed. I have submitted a general enquiry to them, their website is not that comprehensive IMO... but yes I could see if they do part ex. It would be a hassle to temporarily rent. 

Flick85

I'd also advise phoning them and going round for a chat if you can. I've done this with 4 developers so far (the town I'm looking in has 7 active developments atm), and it's given me really good insight into their varying approaches - e.g. one said they don't change their prices based on the market, only on cost of building materials, whereas another was willing to tell me how much the house type I like sold for in January but said 'but with the market as it is, it will be at least 50k higher now'.

GDB2222

I was spammed by a firm of estate agents about a new build block of flat In Liverpool.  As I was not busy, I made some extensive enquiries.

They wanted £5k as a reservation fee, having given almost no details. And what they did give was non binding, as it was not part of the contract, plus it was incredibly sketchy, like your video that does not match up. When I asked about finishes, they sent me pictures of a completely different block. In short, anything to get my £5k.

Part of the sales spiel was that a flat had just come back on the market, and I needed to hurry to secure it. If that was true, it meant that some other buyer had walked away from their £5k deposit, once their solicitor looked into it. 

A normal deposit to reserve a new build is £500, not thousands, as you have been asked to stump up. And, make sure, if you do decide to go ahead, that your deposit is held by the solicitor until completion, not released asa stage payment. 

mat1964

GDB2222 said:

A normal deposit to reserve a new build is £500, not thousands, as you have been asked to stump up. 

that's not correct- depends on the builder and the development.  I paid £5k reservation fee for my Berkeley Homes new build.  

I did negotiate them down a little on the deposit amount on exchange - so I was able to use the deposit on my sale to find it.

user1977

GDB2222 said:

A normal deposit to reserve a new build is £500, not thousands, as you have been asked to stump up.

In case there's any confusion, the OP is talking about the contractual deposit, not a pre-contract reservation fee.

GDB2222

user1977 said:

GDB2222 said:

A normal deposit to reserve a new build is £500, not thousands, as you have been asked to stump up.

In case there's any confusion, the OP is talking about the contractual deposit, not a pre-contract reservation fee.

He was referring to both, I think:-

“ I have been looking at a development in progress and it states that you need to pay a reservation fee of a few thousand and then 28 days later they require 10% of the purchase price for exchange of contracts. ”

Anyway, a non-refundable reservation fee of thousands is pretty outrageous, in my view. Of course, I have not seen the reservation agreement in this case.

mat1964

GDB2222 said:

Anyway, a non-refundable reservation fee of thousands is pretty outrageous, in my view. Of course, I have not seen the reservation agreement in this case.

agreed.  Of our £5k fee, you got all of it back if you pulled out within a week - down to £1500 back if you pulled out after 21 days or more.