What Is Buying Off-Plan?
Choosing the right home to buy can take time and effort. Among the things you’ll need to consider is whether to buy a home that’s already been completed or to buy a new build. These days, more people than ever are considering buying a new build home for various reasons. If you’re looking at new-build homes, one choice you’ll quickly discover is the one to buy off-plan property. Is this the right move for you? Understand the off-plan meaning, the way most people use the phrase, the benefits and drawbacks, and much more with this guide.
What Is Off-Plan Property? A Definition That Might Help
Buying off-plan property in the UK refers to the process of purchasing a property directly from a developer before its construction is completed. The industry uses the term “off plan,” meaning you look at the plan of the house instead of an actual house. Buyers commit to a property that is still in the planning or construction phase, often based on the plan of the house, design specifications, and artist’s impressions.
In this scenario, buyers typically have the opportunity to choose from a range of off-plan developments and the properties in them, such as apartments, townhouses, or detached houses. They may also have the chance to customise certain aspects of the property, such as selecting finishes, fixtures, and optional upgrades. The key to this type of plan is that buyers make the purchase based on the house plan UK developers offer, not an existing property.
Benefits Of Buying Off The Plan
There are many different benefits to buying off plan. Here are a few of the most important:
- Lower purchase price: One of the primary benefits of buying off plan for sale is the potential to secure a property at a lower price compared to the market value at the time of completion. Developers often offer discounted prices or incentives to attract early buyers. Buyers can benefit from capital appreciation by purchasing at an early stage as the property value increases during the construction period.
- Customisation and personalisation: Buying from a home purchase plan alone allows buyers to have input into the design and customisation of their future homes. Depending on the stage of construction, buyers may have the opportunity to select finishes, fixtures, and optional upgrades to suit their preferences and lifestyle. This level of customisation can result in a home that reflects the buyer’s taste and requirements.
- New and modern features: Property off-plan is typically designed to meet modern standards and often incorporates the latest construction techniques, energy-efficient features, and technological advancements. By purchasing off-plan, buyers can enjoy the benefits of a newly constructed property with contemporary design and amenities.
- Potential for capital appreciation: Buying a new build-off plan can offer the potential for capital appreciation. As the property is purchased at a pre-construction price, any increase in property values during the construction period and beyond can result in a higher return on investment when the property is completed. This potential appreciation can be advantageous for long-term investors.
- Financial flexibility: Purchasing off-plan properties often allows buyers more time to save for the deposit and secure financing. Buyers can use this additional time to plan their finances, explore mortgage options, and secure the best terms. This flexibility can be particularly beneficial for first-time buyers or those looking to enter the property market.
- First choice of units: Buying off the plan gives buyers the first choice of available units within a development. This means buyers can select their desired property’s preferred location, layout, or specific features. The availability of choice diminishes as the development progresses and units are sold.
- Brand new property: When you buy off plan, it ensures that buyers receive a brand new property with no previous occupants. This means they won’t need to worry about immediate repairs or maintenance issues common with older homes. Additionally, most new properties come with warranties and guarantees for construction and appliances, providing peace of mind.
Drawbacks Of Buying Off The Plan
Although there are so many benefits when you buy off-plan property, there are also some real drawbacks. Uncertainty and delays are some of the biggest. Buying off plan involves uncertainty, as buyers commit to a property that has not yet been constructed. Construction delays are common, and the completion timeline may be extended beyond the initial estimates. Buyers should be prepared for potential delays and adjust their plans accordingly.
Another real drawback of buying property off-plan is that you may experience unexpected changes in design and specifications. Developers may have the right to make changes to the design, layout, or specifications of the property during the construction process. While these changes are often minor, they can sometimes affect the buyer’s initial expectations. Buyers should carefully review the contract to understand any provisions related to potential variations in the finished product. Remember that when buying off-plan, you have to rely on the plans themselves, artists’ impressions, and show homes to visualise the final product. You may not have the opportunity to physically look at the property before you commit to the purchase. While developers often provide visual representations and show homes, there is always a degree of uncertainty until the property is completed.
There’s also quite a bit more risk involved with buying a house off-plan. Buyers assume a level of risk associated with the developer. It is essential to research the developer’s track record, experience, and past projects to assess their credibility and ability to complete the development as planned. Engaging a reputable developer with a solid track record can help mitigate this risk.
Keep in mind that buying a home this way, as with buying any other home, means dealing with an unpredictable property market. There is a chance that property values may not increase as anticipated during the construction period. While off-plan purchases can offer potential capital appreciation, there is no guarantee of future price appreciation. Buyers should consider their long-term investment goals and weigh the potential risks involved.
You may also encounter some financial challenges by choosing to buy off plan. Securing financing for an off-plan purchase may present certain challenges. Lenders may have specific criteria and restrictions for financing off-plan properties, including requirements for valuations, loan-to-value ratios, and staged release of funds. Buyers should consult with lenders early on and ensure they have a solid financing plan in place.
Finally, remember that by buying off-plan property, you have limited negotiation power. In a strong market, developers may have less incentive to negotiate on price or other terms, as demand for off-plan properties can be high. Buyers should be prepared for potentially limited negotiation power compared to purchasing an existing property, especially if the development is in high demand.
The Steps Involved If You Want to Buy Off Plan
If you’re still convinced that buying off plan is a good idea for you, you’ll need to follow the process to make it happen.
Step 1 – Make Sure You Can Borrow The Money You Need
If you think this might be how you’d like to purchase a home, the best thing you can do first is speak to a mortgage broker to verify that you’ll be able to borrow the funds you need. Additionally, you’ll need to find a development in the area you want to live in. Start by defining your needs, preferences, and priorities. Consider factors such as proximity to work, schools, amenities, public transportation, safety, recreational facilities, and the overall lifestyle you desire. Understanding what is important to you will help narrow down your search. Then do a bit of research online to gather information about different neighbourhoods. Websites, property portals, and online forums can provide insights into the characteristics, amenities, and housing developments available in various areas. Once you have shortlisted potential neighbourhoods, visit them in person if possible. Exploring the area firsthand allows you to get a feel for the atmosphere, observe the surroundings, and assess if it aligns with your preferences. Take note of the amenities, public spaces, cleanliness, and general ambience.
Step 2 – Reserve The Home You Want
Once you find a development that is right for you and you know you’ll be able to obtain the financing you need for the property, the next step is to reserve it. Reach out to the developer or their sales agent representing the project. You can typically find their contact information on the development’s website or through online property portals. Get in touch to express your interest in reserving a property. Inquire about the reservation process and the specific requirements of the developer. They will provide you with the necessary details, such as any reservation fees, paperwork, and the timeframe involved. Familiarise yourself with their terms and conditions, including any refund policies. Then, schedule a meeting or visit with the developer or their sales agent to discuss the available options and review the details of the off-plan property. This meeting can provide you with an opportunity to ask questions, and view plans, specifications, and visual representations of the property. Next, complete the reservation paperwork. This typically includes a reservation form or agreement provided by the developer. Carefully review the terms and conditions and ensure that you understand your obligations as a buyer. Finally, you’ll need to pay the reservation fee. Developers usually require a reservation fee to secure your chosen property. The amount can vary, but it is typically a percentage of the purchase price. Make sure you are aware of the fee amount, payment method, and any applicable deadlines.
Step 3 – Connect With A Conveyancer Or A Solicitor
At this point, you’ll want to connect with a conveyancer or a solicitor. There are several reasons this matters when you’re buying off plan. One reason you may want their help is that off-plan purchase contracts can be complex, containing specific provisions and terms that may be unfamiliar to buyers. A legal professional can review the contract thoroughly, which can help to protect your rights and interests. They can explain the terms, identify any potential pitfalls or unfavourable clauses, and advise you on the implications of the contract. A solicitor can ensure that the developer’s contract complies with legal requirements, industry standards, and relevant regulations. They will check that the contract includes necessary warranties, guarantees, and dispute resolution mechanisms to safeguard your investment. Additionally, your solicitor or conveyancer will conduct the necessary due diligence to verify the developer’s ownership of the land and confirm the existence of necessary planning permissions and building regulations. They will also ensure that the property is registered correctly and free from any encumbrances or legal issues that could affect your ownership rights. Moreover, your solicitor can advise you on the appropriate mechanisms for protecting your deposit, such as the use of an escrow account or a warranty scheme. They will ensure that the deposit protection arrangements are in place and compliant with relevant regulations. Eventually, your solicitor will guide you through the completion process, ensuring that the necessary legal and financial requirements are met. They will coordinate with the developer’s legal representatives, oversee the transfer of ownership, and handle the necessary paperwork for a smooth handover of the property.
Step 4 – Get Your Financing In Place
In the next few sections, we’ll talk more about how to obtain a new build mortgage. The key thing to remember here is that at this point, you should be applying for the right mortgage. It may help to work with a broker that specialises in new-build mortgages so you can get the best possible deal. Buying a new build home with a mortgage doesn’t work like obtaining a mortgage on an existing property does, and knowing that ahead of time can be helpful. New-build mortgages are fairly complex, so be sure you allow plenty of time to get the mortgage you need.
Step 5 – Exchange Contracts
The exchange of contracts when buying off plan follows a similar process to that of purchasing an existing property, with a few key differences. As in any other home-buying situation, your solicitor will review the contract provided by the developer, ensuring that it aligns with your interests and protects your rights. They will address any concerns, negotiate amendments if necessary, and provide advice on the terms and conditions. Once you are satisfied, you will sign the contract. Upon signing the contract, you will be required to pay the deposit. The deposit amount and payment terms should be outlined in the contract. This is usually between five and ten per cent of the total price of the home. The deposit is usually held by your solicitor in a designated account until completion. The completion date is the date when the property will be finished, and ownership is transferred to you. The completion date is usually estimated at the time of exchanging contracts but may be subject to change based on the progress of the development. The agreed completion date will be recorded in the contract. The exchange of contracts typically occurs between your solicitor and the developer’s solicitor. Both parties will exchange signed copies of the contract, and at this point, the transaction becomes legally binding. You are obligated to proceed with the purchase, and the developer is committed to delivering the property as agreed. After the exchange of contracts, you will need to arrange for the payment of the remaining balance of the purchase price. The balance is usually payable upon completion, but some developers may require staged payments based on the construction progress. Your solicitor will guide you on the payment process and ensure the funds are transferred appropriately. Following the exchange of contracts, the developer will continue with the construction of the property according to the agreed timeline. As the completion date approaches, your solicitor will coordinate with the developer to finalise the necessary paperwork and arrangements for the handover of the property. On that date, your solicitor usually gets the necessary documentation, including a completion statement and the keys to the property. They will handle the transfer of funds to the developer and oversee the registration of the property in your name. At this point, you officially become the owner of the property. It’s important to note that the specific details of the exchange of contracts may vary based on the developer and the terms outlined in the contract. Your solicitor will guide you through all of the legalities and protect your interests throughout the transaction.
Step 6 – Ensure The Home Is Finished
When the developer says your home is finished, you may still not be certain that it’s done. Don’t feel pressured to move in before it’s completed to your liking. Make certain you have a snagging inspector to check things over. We’ll talk a bit more about the importance of a snagging inspector in the next section, but it’s the single best way to ensure the property is finished to the standard you expect.
Step 7 – The Day Of Completion
In most cases, you’ll get two different dates from the developer for the day of completion. The first date, sometimes called the shortstop date, is the day they expect the property to be completed. The other date is the long stop date, meaning the required date by law that they will have it completed. Either way, once the day of completion is reached, you’ll have the opportunity to move into your new home.
The Importance Of A Snagging Inspector
Step six in the section above discussed hiring a snagging inspector to ensure the property was completed to meet your needs. Not everyone takes this extra step, but you absolutely should. It helps ensure that any construction defects, known as “snags,” are identified and rectified before the completion of the property. A snagging inspector is trained to meticulously inspect the property and identify any defects or issues with the construction, finishes, or installations. They have a keen eye for detail and can spot problems that may not be immediately apparent to the untrained eye. This includes issues such as poor workmanship, faulty installations, or incomplete finishes. Engaging a snagging inspector allows for a thorough inspection of the property before the handover from the developer. This means any issues identified can be raised and rectified by the developer before you take possession of the property. It provides an opportunity to ensure that the property is delivered in the condition promised and meets the agreed-upon specifications. Purchasing a property is a significant investment, and you want to ensure that you receive a quality product. By hiring a snagging inspector, you can protect your investment by having an independent expert assess the property’s condition and identify any areas that require attention. This can help you avoid potentially costly repairs or issues down the line.
How Do You Get A Mortgage When You Buy Off Plan?
One of the most important steps is finding the right mortgage to buy off plan. Remember that not all lenders are willing to lend to people who are buying off plan. There’s a higher risk factor associated with this type of transaction. Lenders are aware that off-plan purchases involve buying a property that is yet to be constructed. This introduces the risk of construction delays, changes in market conditions, or even the possibility of the development not being completed as planned. Uncertainty regarding the finished product can make lenders cautious. More than that, though, valuing an off-plan property can be more challenging compared to valuing an existing property. Lenders need to assess the property’s value based on architectural plans, artist’s impressions, and the reputation of the developer. Valuation uncertainties can impact the loan-to-value (LTV) ratio and the maximum loan amount a lender is willing to provide.
Regardless of those potential risks for a lender, some are willing to lend to you if you decide to purchase off-plan. In that situation, you’ll want to familiarise yourself with the specific lending criteria for off-plan purchases. Lenders may have additional requirements or considerations when it comes to financing properties that are yet to be completed. Factors such as the developer’s reputation, the stage of construction, and the expected completion date may influence the lending decision. Once you know what they need, provide them with the required documentation. That may include proof of income, bank statements, identification, and details of the off-plan property you intend to purchase. Be prepared to provide any additional documentation that the lender may request.
Once that stage is complete, the lender will typically conduct a valuation of the off-plan property to assess its value and suitability as security for the mortgage. This valuation may take into account factors such as the stage of construction, location, and market conditions. The lender’s assessment will help determine the maximum loan amount they are willing to provide. After the lender completes their assessment, they will issue a mortgage offer if you meet their lending criteria. The mortgage offer will outline the terms and conditions of the loan, including the interest rate, repayment structure, and any special requirements specific to off-plan purchases. Once you have received a mortgage offer, you can proceed with exchanging contracts with the developer.
Should You Make The Decision To Buy Off Plan?
Despite the associated risks, buying a house off plan can be an exciting opportunity for those seeking a new home that truly meets their needs. It offers the chance to be involved in the creation of a property from the early stages. If you do choose to go this route, though, make sure you conduct thorough research, exercise due diligence, and seek professional advice to make informed decisions throughout the process.