There are a great many benefits to buying off-plan property, particularly in a gradually rising market.
Putting down your deposit for a certain amount and then waiting for your home to be completed as it gains value over time – without you having to lift a finger – will always be an appealing prospect.
However, there are a number of challenges that the uncertainty of Brexit may pose. In the following post, private quick homebuyers Property Solvers run through three of the main ones…
1. A Market Crash
Many people invest in off-plan property in order to “flip it” by purchasing it during the construction phase at a discounted rate, then waiting for it to accrue greater value and selling it before it is complete.
However, there is the potential for Brexit to cause a housing market crash – as investors are likely to practice caution and put a hold on their projects, while regular homebuyers may decide that now may not be the best time to part with their money.
Should this be the case, there is a threat that you may lose money on your investment.
Off-plan is considered a low-risk field by investors, as it requires minimal initial financial input but is likely to offer a considerable return on investment, so it is unlikely that a crash would affect this area as much as others.
Should there be a problem, you’ll probably need to be prepared to hang on to your new property beyond its completion date and wait for the market to rise again. Of course, a gradual market increase provides the perfect opportunity to sell.
2. The Developer Abandoning the Project
If the developer working on your off-plan property becomes concerned about the financial implications of Brexit, there is a slight possibility that they may abandon the project.
This is highly unlikely, however, since – as previously mentioned – there is considered to be a lower risk attached to off-plan property than to other types of development.
There is also the possibility that your developer may shut up shop for good should Brexit have a severe impact on their business.
While either of the above scenarios are troubling, as you will not end up with a completed house, there are ways in which you can limit the damage.
The best approach is to ensure that any deposit you pay is covered by a solid insurance policy, guaranteeing that it will be paid back to you should the project be terminated early.
Remember, most of the policies of this kind will only cover deposits of up to 10%, so you should consider this when putting money down.
Otherwise, you could arrange for the deposit to be held in escrow until your home has been finished, with the developer only able to access it once they have delivered their side of the arrangement.
3. The Project Slowing or Pausing
It may be that the developer decides to put a hold on proceedings and wait until a Brexit deal has been confirmed in order to fully gauge the impact it will have on their work.
They may also have to change suppliers and contractors for certain areas of the project depending on the impact of Brexit on other businesses, which could lead to a hold up. One of the risks that may arise from this scenario is the invalidation of any mortgage agreement you have in place.
Mortgage agreements commonly last for just six months at a time, so, should there be a considerable delay, you may need to reapply in the time it takes for a project to be completed.
At that point, you may find that it is harder to get a mortgage either as a result of the uncertainty of Brexit or the shaky position of the project itself.
Again, this is unlikely to happen, and will probably only affect you if you only have a limited choice of lenders available to you. Whatever the case, we recommend seeking assistance from a trusted mortgage broker before you dive in.
Always research your developer before you choose to buy from them. Consider whether their connections or interests will be heavily affected by the departure of the UK from the EU and check on their track record in terms of finishing projects punctually.
If they have survived tough times before – such as the credit crunch of 2007/8 – this may indicate that they can do it again, though there is no guarantee.
The best approach is to make sure that your end of the agreement is heavily covered by insurance and beneficial contractual agreements before you commit to buy.
However, it’s important to note that investment in off-plan property is highly popular, so there should be no cause for concern at all.