New homes can be super-attractive – new, fresh and unlived-in – a blank canvas for you to create the home of your dreams.
But, like with second-hand properties, new properties have a fair few “traps for the unwary” – things that can cost you serious money and headaches if you get them wrong – “new house no-no’s”
1. Reservation fee risks
The builder or developer will usually ask you to pay a reservation fee of a few hundred pounds to show your seriousness and reserve your chosen plot or property.
Check whether the deposit is refundable. If not, don’t pay it until you are absolutely sure that you will be able to proceed with your purchase.
For example, if you will need a mortgage to buy, make sure you are approved for a “mortgage in principle” before reserving.
BE PARTICULARLY CAREFUL WHEN DEALING WITH SMALL OR UNKNOWN DEVELOPERS.
Even if the reservation fee is refundable, check that it will be adequately protected so as to be repayable to you in the event of the developer falling into financial difficulties.
2. Jumping the mortgage gun
A big no-no is agreeing to buy a new property, indeed any property, without a cast-iron mortgage offer in place.
There can be a strong temptation to do so with an off-plan property: where building work has not started and physical completion of the building is a very long time away.
But such temptation should always be avoided. If you exchange contracts without a mortgage and can’t secure one to legally complete your purchase, you run the following risks:
- Losing your reservation fee
- Losing your deposit paid on exchange of contracts – typically 10% of the purchase price
- Expensive court proceedings forcing you to complete
- Wasted legal cost and other charges.
FIRST TIME BUYER BASICS
Buying a property fast (wacky and wicked ways to raise a deposit)
Say no to being a tenant forever (how you can escape the tenant trap)
Property buyer newbie (explains the basic steps when buying)
50 Ways To Put Together A Deposit in 6 Months
3. Buying off-plan in a falling market
It makes no financial sense to buy a property off-plan when property prices are clearly falling or seem very likely to fall. You are likely to suffer big losses.
The price stated in the contract is the price you must pay – even if, when the property is built, it is worth much less.
On the other hand, if prices are rising, buying off-plan could result in you making a substantial capital gain when the property is completed.
WANT TO LEARN HOW TO RAISE A DEPOSIT TO BUY A PROPERTY FAST? FIND OUT MORE HERE
4. The right to assign the contract
When buying a property off-plan, it’s best if the contract includes a right for you to pass on or assign the contract to someone else – who is then able to complete the purchase in place of you.
This might be handy if for any reason you can’t or don’t want to complete the purchase – for example, your mortgage offer is withdrawn because of a change in your circumstances, such as loss of employment.
Developers are sometimes reluctant to allow buyers to assign their contract.
Agreeing to a non-assignable contract exposes you to a level of risk you should think twice about accepting.
FIRST TIME BUYER BASICS
Is getting a mortgage easy? (exposes the secrets of getting a mortgage)
My first property (important things every first time buyer must know)
Raising a deposit (14 common ways to bag a deposit with ease)
5. Being able to walk away
It is a really bad idea to agree to buy a property off-plan if there is no right for you to walk away if the developer fails to build the property within the timescale set out in the contract.
The right to walk away without a penalty and get your deposit back is given by what is known as “a long stop date clause”.
Once the date has been reached and the property is not completed in line with the contract, you have the right to walk away.
You may be very keen to walk away if property prices are falling fast. If however, prices are rising, you may be prepared to wait for the builder to finish – knowing that you stand to be quids in.
Have you had any unpleasant experiences with buying new home? Are you willing to share? Other readers may benefit from your experiences. Please leave your comments below.
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Rebel Property Coach
My website is: www.rebelpropertycoach.com