*** New Build Purchase Question..... ***
Discussion
Hi,
I have recently agreed to purchase a new build house in a city centre from a medium sized developer who is reasonably well known in the North of England.
The property is nowhere near being completed yet (only ground works have commenced on the development) and, to date, I have a paid a refundable deposit of a few thousand pounds to secure the plot.
However, the developer wants me to Exchange Contracts asap (and thus pay the non-refundable deposit of £30k) despite no property built as yet.
I cannot obtain a formal mortgage offer as no property to value and the build won't be completed for c. 9 months.
Is this normal when purchasing a new build property?? The developer says it is but my conveyancer thinks otherwise.
Would appreciate your thoughts??
Cheers
I have recently agreed to purchase a new build house in a city centre from a medium sized developer who is reasonably well known in the North of England.
The property is nowhere near being completed yet (only ground works have commenced on the development) and, to date, I have a paid a refundable deposit of a few thousand pounds to secure the plot.
However, the developer wants me to Exchange Contracts asap (and thus pay the non-refundable deposit of £30k) despite no property built as yet.
I cannot obtain a formal mortgage offer as no property to value and the build won't be completed for c. 9 months.
Is this normal when purchasing a new build property?? The developer says it is but my conveyancer thinks otherwise.
Would appreciate your thoughts??
Cheers
Although it doesn't make much sense to me, I believe the process to buy a new house is:
1. Holding deposit (£1k)
2. Have to exchange contracts within 1 month (and pay the typical deposit)
3. At some random point in the future the builder gives you about a weeks notice and you need to rush around and complete
1. Holding deposit (£1k)
2. Have to exchange contracts within 1 month (and pay the typical deposit)
3. At some random point in the future the builder gives you about a weeks notice and you need to rush around and complete
frisbee said:
Although it doesn't make much sense to me, I believe the process to buy a new house is:
1. Holding deposit (£1k)
2. Have to exchange contracts within 1 month (and pay the typical deposit)
3. At some random point in the future the builder gives you about a weeks notice and you need to rush around and complete
I haven't purchased a new build myself but do sell them and this is pretty much the process, we try to have more dialogue so no rushing in the last week but that will vary with who you deal with.1. Holding deposit (£1k)
2. Have to exchange contracts within 1 month (and pay the typical deposit)
3. At some random point in the future the builder gives you about a weeks notice and you need to rush around and complete
Even if you could get a mortgage offer it would probably have expired before completion. I bought a flat from Tarmac Homes in the 80's off plan but we renegotiated the deposit to £300. I didn't bother about a mortgage offer as the market was rising quickly, it was already underpriced and was clearly going to take many months to build.
We're just going through a similar scenario (albeit ours is in the final stages of the build) and all over the paperwork and contracts it states upon exchange they want the 10% deposit - I checked this with our solicitor as our funds are coming from the sale of our house, which obviously won't be available until we complete. He said it's not a problem, moreover the developer could potentially sue you for the deposit value after the exchange if it all collapses.
TL:DR - you should be fine! Just get your solicitor to confirm
TL:DR - you should be fine! Just get your solicitor to confirm
What happens if builder goes bankrupt between now & build finishes? What happens to your deposit? He walks away with it, and you have to start all over again with the next builder that buys the plot?
This is what happened to Auntie & Uncle when they bought one of a handful of upmarket homes in a new mini estate, from a 'good' local builder. He went bankrupt, plot was sold to another builder and they lost their (high) 5 figure deposit. Some of their neighbours lost 6 figures in it.
This is what happened to Auntie & Uncle when they bought one of a handful of upmarket homes in a new mini estate, from a 'good' local builder. He went bankrupt, plot was sold to another builder and they lost their (high) 5 figure deposit. Some of their neighbours lost 6 figures in it.
I've done similar in the past. You can't of course get a mortgage offer, so yes you end up exchanging contracts on a property that does not yet exist. Couple of things to consider -
1. You need to be very confident that you are financially secure enough to obtain a mortgage when the property is nearing completion. We went through a broker who we trusted and was confident we would be able too.
2. Make sure literally EVERYTHING is included within the contract. Literally down to the final specification inc kitchen etc so you know what you are getting for your money. I asked my conveyancer at the time re the builder going bust. Apparently in this scenario NHBC become liable for any cost incurred/loss to you. Might be worth checking.
1. You need to be very confident that you are financially secure enough to obtain a mortgage when the property is nearing completion. We went through a broker who we trusted and was confident we would be able too.
2. Make sure literally EVERYTHING is included within the contract. Literally down to the final specification inc kitchen etc so you know what you are getting for your money. I asked my conveyancer at the time re the builder going bust. Apparently in this scenario NHBC become liable for any cost incurred/loss to you. Might be worth checking.
Firstly, you will get a mortgage offer based on a plan of the house - your solicitor won't allow you to exchange unless you have a mortgage offer. The surveyor might just look at the slab in the ground but they will gauge a valuation based on other similar properties
Most mortgage offers last 6 months and you can usually refresh them after the 6 month period with the minimum of fuss - it might be a bit different in a significantly downward market though
The big disadvantage for you is if it takes 9 or 12 months to build and the market moves against you - i.e. property goes down and you don't complete. The builder will take your deposit and can sue for the difference between what you were going to pay and what another buyer does
Exchange in 28 days is standard for new builds even if they are a long way of being complete
Best of luck!
Most mortgage offers last 6 months and you can usually refresh them after the 6 month period with the minimum of fuss - it might be a bit different in a significantly downward market though
The big disadvantage for you is if it takes 9 or 12 months to build and the market moves against you - i.e. property goes down and you don't complete. The builder will take your deposit and can sue for the difference between what you were going to pay and what another buyer does
Exchange in 28 days is standard for new builds even if they are a long way of being complete
Best of luck!
Andehh said:
What happens if builder goes bankrupt between now & build finishes? What happens to your deposit? He walks away with it, and you have to start all over again with the next builder that buys the plot?
N90BAR said:
I asked my conveyancer at the time re the builder going bust. Apparently in this scenario NHBC become liable for any cost incurred/loss to you.
NHBC warranty said:
The builder is responsible for completing the home to NHBC Standards. After exchange of contracts if, because of insolvency or fraud, your builder does not start or complete building your new home, we will reimburse your deposit or arrange for the home to be completed in line with the NHBC Standards.
We will pay up to a maximum of 10% of the purchase price or £100,000, whichever is less.
Source: http://www.nhbc.co.uk/Warrantiesandcover/Homeowner...
We will pay up to a maximum of 10% of the purchase price or £100,000, whichever is less.
Source: http://www.nhbc.co.uk/Warrantiesandcover/Homeowner...
I'd tell the developer that you don't have the money and your mortgage company won't lend you anything until the flat is near completion. You're right on the limit of what you can borrow so you don't want to / can't change lender. If he still kicks up a fuss I'd offer to take my refundable deposit back and go elsewhere. There is no way I'd be giving a developer a non-refundable £30k for a pile of mud in the north of England.
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