Buying a new build flat off-plan (First time buyers)

abovesealevel

Hi everyone,

My partner and I have been looking at buying a new-build flat which is due to be completed by August, although this could run over (just recently changed from June to August). This is our dream flat in the perfect location – we weren’t set on buying new-build at first, but given everything else we’ve seen, this is what we want to go for.

We haven’t put in an offer yet but are considering doing so this week. The flat is on sale for £510,000 (South East) and we have a mortgage advisor who is confident we can secure a 90% LTV mortgage for the flat. We are also planning to ask for help with legal fees and stamp duty tax.

The process would involve paying a reservation fee and working towards a 28 exchange of contracts on Notice to Complete, in which we will pay our 10% deposit, and then once the building has been handed over, a 10-day notice to complete will be issued.

Now, for the worries – what happens if, in the 10-day notice, the bank undervalues the flat? We are worried that, for example with rising interest rates, the property price will go down. We might be able to save £20,000 in a year’s time, but probably not much more. We would definitely not be able to afford to pay out of pocket if it’s more than that to make up the difference, and the thought of losing our £51,000 deposit is frankly terrifying.

Do we have any options to protect ourselves against this scenario, or is this just the risk of buying off-plan new builds? And does anyone have experience with negotiating caps of service fees (while we have a buffer in our budget for this if they were to quadruple we would run into some issues)?

Thank you for any insights!

user1977

abovesealevel said:

once the building has been handed over, a 10-day notice to complete will be issued.

Now, for the worries – what happens if, in the 10-day notice, the bank undervalues the flat? 

That doesn't happen, because there is no valuation in that period. Valuations of off-plan properties are done off-plan.

eddddy

abovesealevel said:

 And does anyone have experience with negotiating caps of service fees (while we have a buffer in our budget for this if they were to quadruple we would run into some issues)?

Some social housing leases (and some short commercial leases) have service charge caps - but it would be very unusual (and probably almost impossible) to negotiate a long term service charge cap on a long term lease for a flat.

The question would be - if you don't pay your share of the insurance, maintenance, repair and admin costs - who would pay it instead, and what source of money would they use?


But I've heard of some developers paying service charges as an incentive - e.g. "We'll give you a free kitchen, free carpets and we'll pay your service charges for the first year."


But generally, it's a case of doing your own assessment to decide how much service charges might increase. For example...

• Are there plush carpets in the communal area which will need replacing every 6 years
• Are there gardens which will need lots of upkeep and mature trees that will need lots of pruning
• Are there lifts which will need regular maintenance and testing, plus periodic refurbishing (lifts can be super expensive)
• Are there other communal facilities which might become very expensive to run (gym, laundry room etc)

abovesealevel

user1977 said:

abovesealevel said:

once the building has been handed over, a 10-day notice to complete will be issued.

Now, for the worries – what happens if, in the 10-day notice, the bank undervalues the flat? 

That doesn't happen, because there is no valuation in that period. Valuations of off-plan properties are done off-plan.

Oh! The wording on a lot of websites is very confusing. 

From HOA website: 

If your property value changes significantly it could affect your mortgage offer.

We are looking at a 6 month mortgage offer with the ability to renew without any charge, so we would be covered by the valuation for 12 months. I now realize this is only in case we have to re-apply for the mortgage. 

Thanks for your help

abovesealevel

eddddy said:

abovesealevel said:

 And does anyone have experience with negotiating caps of service fees (while we have a buffer in our budget for this if they were to quadruple we would run into some issues)?

The question would be - if you don't pay your share of the insurance, maintenance, repair and admin costs - who would pay it instead, and what source of money would they use?

Super important question, thank you! We will look into this. 

user1977

abovesealevel said:

eddddy said:

abovesealevel said:

 And does anyone have experience with negotiating caps of service fees (while we have a buffer in our budget for this if they were to quadruple we would run into some issues)?

The question would be - if you don't pay your share of the insurance, maintenance, repair and admin costs - who would pay it instead, and what source of money would they use?

Super important question, thank you! We will look into this. 

I think it's a rhetorical question - nobody else is going to step in and pay the common charges, other than whoever happen to be the flats' owners from time to time.

eddddy

abovesealevel said:

eddddy said:

abovesealevel said:

 And does anyone have experience with negotiating caps of service fees (while we have a buffer in our budget for this if they were to quadruple we would run into some issues)?

The question would be - if you don't pay your share of the insurance, maintenance, repair and admin costs - who would pay it instead, and what source of money would they use?

Super important question, thank you! We will look into this. 

Yep - sorry, it was a rhetorical question.

To use a simple example...

• A block contains 20 flats - the leases say that each flat is responsible for 5% of the repair costs.

• The roof starts leaking and needs £10k worth of repairs. So that's £500 per flat owner.

• If you say "I'm not paying because I've already reached my cap" - then there's not enough money to fix the roof leak

That's why a cap isn't really viable.

abovesealevel

eddddy said:

abovesealevel said:

eddddy said:

abovesealevel said:

 And does anyone have experience with negotiating caps of service fees (while we have a buffer in our budget for this if they were to quadruple we would run into some issues)?

The question would be - if you don't pay your share of the insurance, maintenance, repair and admin costs - who would pay it instead, and what source of money would they use?

Super important question, thank you! We will look into this. 

Yep - sorry, it was a rhetorical question.

To use a simple example...

• A block contains 20 flats - the leases say that each flat is responsible for 5% of the repair costs.

• The roof starts leaking and needs £10k worth of repairs. So that's £500 per flat owner.

• If you say "I'm not paying because I've already reached my cap" - then there's not enough money to fix the roof leak

That's why a cap isn't really viable.

Haha ok sorry I see now, I completely missed that.

I read it in the sense of "if someone from the flat isn't paying, do the other leaseholders have to step up for them?" And that is why I thought it was a good question to clarify with the developer   

But yeah, it makes sense why a serve charge cap is not feasible.