Is buying off-plan a good plan?

Is buying off-plan a good plan?

House hunters usually view multiple homes before they fall in love and make an offer. 60% of people view five properties or more. And 7% look at over twenty. But for some buyers, zero viewings will do. Well, zero physical viewings of the home they ultimately decide to buy. We’re referring, of course, to those buying off-plan. 

Although it might sound bonkers to pay a five or six-figure deposit on the basis of some floor plans, an artist’s impression, a flick through a glossy brochure, and a chat with a developer, buying off-plan has several advantages - particularly in the current climate where there’s a chronic lack of stock. After all, if you can’t find a readymade home on the online portals then why not sign up for one that’s soon-to-be-made in the (hopefully) not too distant future? 

What’s more, thanks to the government’s Help To Buy initiatives, buying new build properties has become increasingly popular in recent times. Indeed, homebuyers often line up in droves to view local show homes and reserve the best plots. So are these off-plan buyers on to something? Let’s get straight to the crunch and digest the pros and cons…

The advantages of buying off-plan

There are several practical and financial benefits to buying off-plan. But first, let’s start with the obvious advantage: you can secure a brand new home and often have some say in the design and build. Developers will often let off-plan buyers choose their own fixtures and fittings (within reason). It’s this idea of buying a blank canvas that entices so many buyers.  

You can also secure a great deal if you’re an off-plan buyer, especially if you’re an early bird. Developers like to sell a few plots quickly to fund the rest of the building work and give other buyers confidence. Therefore, there’s certainly room to negotiate. If your developer refuses to budge over price, they might agree to pay your stamp duty or giveaway some fixtures and fittings. 

Buying off-plan can also make financial sense. In fact, your new home could immediately be worth more than you paid for it by the time you complete. No wonder so many investors participate in the cheeky (but sometimes risky) practice of ‘flipping’. This is where an investor buys off-plan but then sells the property as soon as the development is complete. 

Finally, buying off-plan is less complicated than buying what developers call ‘second hand’ homes. For starters, there’s no onward chain. You simply pay a reservation fee (typically £1,000) upfront, exchange in as little as 28 days, and then complete when your home is ready. This will be especially attractive to first-time buyers who often have a lot of flexibility when it comes to move-in dates. 

Pros summary:

• Choose aspects of the design

• Select the plot you want

• Attractive discounts often available

• Simpler buying process

Disadvantages of buying off-plan

Sadly, buying off-plan isn’t always a bed of roses. There are quite a few thorny issues to navigate. For starters, it takes an enormous leap of faith: you’ll be spending hundreds of thousands on something you can’t physically see or touch. Most of us would buy a kettle from a catalogue but a home? That’s a different kettle of fish.  

Secondly, you’ll essentially be buying a home on a building site. Who knows how long the noise and potential access difficulties might last? Nothing interrupts an afternoon pina colada, or indeed a work conference call, like the sound of a digger digging dirt next door. Like all new builds, you might also have a snagging list longer than an anaconda to deal with.

The main thing that worries people about buying off-plan, however, is the risk involved. Can you trust the developer? Will the building work be delayed? And what if the developer goes bust? You could lose both your property and your deposit. This might seem like catastrophic thinking but it does occasionally happen.

Finally, organising a mortgage tends to be trickier when you’re buying off-plan. Some lenders simply won’t go there; others will only give offers valid for six months. So what happens if your home takes longer than this to build? You might pay your deposit and then have your offer withdrawn by the time you’re ready to complete.

There’s also a small but hard-to-ignore possibility that your home will be worth less at the time of completion than it was when you exchanged. If this happens, your mortgage company might lower their offer and you’ll have to bridge the gap yourself. Drat. 

Cons summary:

• It’s a leap of faith

• Living on a building site can be disruptive

• You’re at the mercy of your developer

• Borrowing isn’t always straightforward

The bottom line

Buying off-plan isn’t for everyone. Some people don’t like waiting for their home to be built. You’ll also need to be comfortable accepting a degree of risk. It’s a good thing, therefore, that you can do things to mitigate this risk…

For starters, always check the developer’s history, go and see other developments they’ve built, and look up as many reviews as you can. It’s also safer to choose a company with a strong reputation. They’re less likely to go to the wall before they’ve finished building your four walls. 

The Homeowners Alliance also advises off-plan buyers to seek get-out clauses before they exchange. This will give you an escape route if the quality of the build looks poor or there’s a problem with your mortgage later on. It’s also a good idea to find a mortgage offer that’s valid for 12 months rather than six (or at least includes an extension clause). 

The key is to never take anything for granted. Keep visiting the site during the build, hire a surveyor to inspect the home before you complete, and compile a snagging list before moving day. Basically, do everything possible to ensure that the home’s up to scratch before you transfer full funds.  

The good news is that buying off-plan gives you more protection when it comes to defects. There’s no ‘buyer beware’ principle like there is with older homes. Instead, your new home will come with a wonderful new-build warranty so you can sue the developer if any structural problems emerge in the future. 

Due diligence summary:

• Research the developer

• Find a 12-month mortgage offer

• Ask for a get-out clause

• Survey and snag before completion

So is buying off-plan for you? There are certainly cons as well as pros. However, for the right kind of buyer, buying off-plan can be a really excellent plan. You might not be able to see the property beforehand but you can still look before you jump. 

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