Down-valuation on new build flat

ashnelson34

Hi all,

I purchased an off-plan 1B1B apartment with parking, situated within a minutes walk to LTN airport station with direct <25 min links into London and a <2 min train to the airport. This was way back in January-2020 at an agreed sales price of £260,500, contracts were exchanged a month later and a deposit put down of £26,050 (10%). Completion was estimated to be JUL-21, all seemed good and promising. Fast forward a year and a half, with COVID and endless delays due to brexit, I was given an est. of JAN-22 completion but now an estimated completion of NOV-21 is more likely but this again could change.

However, this is the least of my worries, the property was valued a few months ago at £245,000 by lender A and when I reached out to lender B they consequently down-valued it again at £230,000 this month, this seems to be common with new builds In order to satisfy lender A i will need to increase my deposit, lender B is not feasible. Unfortunately with hindsight a flat wasn't the best move just before a pandemic in which many now are moving away from flats/apartments in search for a larger home with a garden, but I couldn't have foreseen that back when I agreed the sale. Do you feel the flats/apartments will recover in the future? Also this development is currently in phase 1 of 3 so can i expect an increase in value once the development is completed? (business offices, hotel, restaurants to come)

Im left with a decision to make:

• Do I pull out and lose my deposit with the potential that the developer sues me for loss of earnings? (Take my losses and get out of a sinking ship as it were)

or

• Stick with it and keep the long term investment in mind, its location and with the hope that in the future flats and apartments regain their value? I also intend on renting out this property in the future and with expected rentals of £900/£1000pm I feel this could perhaps help in recovering my losses?
• Based on the down-valuation could I try and push for a discount on the property? 

I hope this all makes sense and I would appreciate any of your thoughts good or bad, this is my first home and its fair to say i've learnt a lot but I know that I have a lot more to understand so would appreciate any advice.

Kind Regards,
Ashley Nelson

NameUnavailable

As you say you need to consider what possible additional costs you might face if you were to pull out altogether (read the T&C's of what you've signed up to).

Lenders are being cautious at present especially with flats which may be impacted by EWS1 costs and soon new regulations coming in regarding fire safety (and necessary surveys and remedial works - possibly even required on new builds).

I would definitely be speaking to the builders to seek a reduction (unlikely though) and reassurance about any possible EWS1/Fire safety issues - are they sure that their developments are up to the required new standards?

Also be careful about the ground rent amount/clause - many are now granting peppercorn ground rents. Plenty of info on here already for you.

Longer term it's probably safe to say the value will increase, although you will often pay a premium for a new build (new decor/fittings etc). Once Luton Airport is fully back up to speed then there will be plenty of potential tenants for you.

Good luck with it.

Belleofthebooks

I'd stick with it now, otherwise you will lose £26k. Can you afford to make up the down valuation? If you've already exchanged and paid deposit there's little chance of them giving you a discount IMO. I'd advise trying a third lender. 

It seems crazy to me to exchange on a property and pay a deposit years before applying for the actual mortgage. Anything could have changed in that time, your job situation, etc 

Lunchbox

What is the long stop date on the contract? Even if you’ve exchanged, if they’ve exceeded this you should be able to pull out without losing your deposit (unless you’ve agreed to extend it). I doubt it’s beyond January 2022 as it’s designed to try and avoid exactly this scenario.

ashnelson34

NameUnavailable said:

As you say you need to consider what possible additional costs you might face if you were to pull out altogether (read the T&C's of what you've signed up to).

Lenders are being cautious at present especially with flats which may be impacted by EWS1 costs and soon new regulations coming in regarding fire safety (and necessary surveys and remedial works - possibly even required on new builds).

I would definitely be speaking to the builders to seek a reduction (unlikely though) and reassurance about any possible EWS1/Fire safety issues - are they sure that their developments are up to the required new standards?

Also be careful about the ground rent amount/clause - many are now granting peppercorn ground rents. Plenty of info on here already for you.

Longer term it's probably safe to say the value will increase, although you will often pay a premium for a new build (new decor/fittings etc). Once Luton Airport is fully back up to speed then there will be plenty of potential tenants for you.

Good luck with it.

Under the "termination" aspect of the T+C's the additional costs are not in there. They make reference more to in case of the long stop date coming into play as appose to me pulling my deposit. The long stop date is a year from the original est.completion date so JUL-22, very unlikely to make it to that which would qualify for a full refund of deposit. I feel that the deposit will be lost (normally that's the case) but there's no reference to additional costs being applied in my contract.

Are EWS1 costs more for external cladded apartments? My build is external brick throughout so doubt this would affect me, but still a good point to raise with the developer to ensure it is compliant and will be in the future regarding fire safety regs. In order to offer 10 years NHBC they would have to be fire safety compliant no?

Im pushing more towards staying put and be hopeful for the future I think, the airport is a big factor in this plus its access to direct links to london.

Thanks for your help/advice.

GDB2222

I suppose the first question to ask is how much the developers want in order to release you from the contract? Will they accept the 10% deposit, or will they sell the flat to a mate for £200k and pursue you for the rest of their loss?  (That's actually quite unlikely, as it would devalue the rest of the flats.)

ashnelson34

Belleofthebooks said:

I'd stick with it now, otherwise you will lose £26k. Can you afford to make up the down valuation? If you've already exchanged and paid deposit there's little chance of them giving you a discount IMO. I'd advise trying a third lender. 

It seems crazy to me to exchange on a property and pay a deposit years before applying for the actual mortgage. Anything could have changed in that time, your job situation, etc 

I can afford to make the down valuation. A 3rd lender is also in the pipeline + the ongoing appeal with the 2nd lender (unfortunately its rare they recognise an appeal). If the 3rd comes under value, i'm hoping it can be used as leverage in negotiating a price with the developer, unlikely but worth the try.

This is true and I completely hold my hands up to this, i'm very fortunate that I still have my job and no reduction in pay since I signed the contract. A big lesson learned for sure.

ashnelson34

Lunchbox said:

What is the long stop date on the contract? Even if you’ve exchanged, if they’ve exceeded this you should be able to pull out without losing your deposit (unless you’ve agreed to extend it). I doubt it’s beyond January 2022 as it’s designed to try and avoid exactly this scenario.

1 year on from est. completion which is JUL-22. unlikely to be delayed until this date

ashnelson34

GDB2222 said:

I suppose the first question to ask is how much the developers want in order to release you from the contract? Will they accept the 10% deposit, or will they sell the flat to a mate for £200k and pursue you for the rest of their loss?  (That's actually quite unlikely, as it would devalue the rest of the flats.)

As you say unlikely to try and make a lower sale in order to pursue the remainder from me. Id need to contact them to see where they stand in order of me pulling out.

GDB2222

ashnelson34 said:

GDB2222 said:

I suppose the first question to ask is how much the developers want in order to release you from the contract? Will they accept the 10% deposit, or will they sell the flat to a mate for £200k and pursue you for the rest of their loss?  (That's actually quite unlikely, as it would devalue the rest of the flats.)

As you say unlikely to try and make a lower sale in order to pursue the remainder from me. Id need to contact them to see where they stand in order of me pulling out.

I don't know the Luton area well.  

I can see 3 bedroom houses there for £230k. Superficially, they appear to be vastly better value, but I have no idea how they compare with your flat's location. Essentially, if you regard your deposit as a sunk cost, you need to see what else you can buy for around £234k, ie the other 90% you have to pay for the flat.

poolboy

If the managing agent is peverel or first port as they now call themselves, I would try and get out of the deal.  Their service charges are a lot higher than they should be.  If they are hard coded into the lease you can't get rid of them and they know it.  A central block will have a highish percentage of renters in so if they aren't hard coded in the lease, you will need I think half of fellow owners to get a change, in my block of c100 flats I got 5 fellow owners to try to get a change.
The service charges on my flat are eye watering, which impacts on the resale.  When I bought 15 years ago they were c 1500gbp pa, about average for a 2 bed with lift.we are having remedial works so I have paid 6k, 4k, 3k in the last 3 years. Conversely, I own a neighbouring flat which is  really well managed, no lift, but I pay 900 pa service charge.  You obviously cannot recover high service chrges from tenants so it is your cost.

Regarding your purchase, if it were me and hindsight is a wonderful thing, I would buy a house.