Buying off-plan property can very often seem like a dream come true – an exclusive new build property with chic interiors and the latest designs, but is it all that it seems? We are shown a CGI graphic of how the property is supposedly going to look and we’re often so dazzled by its charm and charisma that all logic flies out the metaphorical window.
For anyone thinking of buying off-plan property who doesn’t quite understand what it is, it is essentially buying a property that doesn’t actually exist yet. The process of purchasing is the same, you have a legally binding agreement and you take out a mortgage just as you would with any pre-owned property, the main difference is that you have to wait for its completion. So what are some of the risks of buying off-plan?
Mortgages can be harder to obtain for off-plan properties due to the fact that lenders find it difficult to establish the value of a property that hasn’t yet been built. It is also more difficult for buy-to-let investors to secure a mortgage on new builds as the lending criteria is much stricter – this is due to the higher house prices and consequently the lower yields produced as a result.
Another thing to be wary of is the expected completion date of your new property. If the completion date extends beyond six months, you must be confident that your mortgage lenders will extend your agreement as you are still liable to purchase the property, mortgage or not. Should you have to re-sell the property, the developer is able to sue you for any value lost on the property, meaning you are then responsible for paying the difference.
UK investment property is not cheap and although your deposit is usually only a small percentage of the overall value, you still wouldn’t want to lose that money. Most off-plan projects offer deposit protection under the National House Building Council, but do make sure that you discuss this with your developer before signing any agreements or handing over any money. If the property developers were to go bankrupt, there is always a risk that your deposit won’t be fully protected, or in some cases, protected at all.
Off-plan properties do pose risks, however they reap benefits that no other properties on the market possess. When purchasing a new build, you have a great deal of influence over how the property will look, from colour schemes to fixtures and fittings, you are able to ensure that your home suits the type of tenants you want to attract. It is also unlikely that there will be any maintenance needed on new build houses, meaning that there won’t be any surprise costs for you to pay in years to come.
Although statistics show that new builds are 10%-20% more expensive than similar second hand properties on the local market, off-plan projects do offer a potential financial return and can be a sound buy-to-let investment for those brave enough to take the risk. Working with trusted and professional property developers is paramount to your success, buying an off-plan property that employs companies who value their customers, makes the whole process much more straightforward and minimises the potential risks.