Buying Off-Plan Property? A Comprehensive Overview

property investment Liverpool

If you’re thinking of buying an off-plan property or are wanting to learn what the terminology ‘off-plan’ means, it’s important to understand the advantages and disadvantages of doing so. In this article we will be discussing the process of investing in off-plan property, house flipping and any implications that may occur with off-plan mortgages.

What does buying ‘Off-Plan’ mean?

The term ‘off-plan’ simply refers to buying a property before it’s been built. Many people tend to be hesitant towards these types of developments for obvious reasons such as plans falling through or false expectations – but, what many don’t realise is that when you purchase a property within a market in which property prices are currently on the increase alongside an increasing demand in homes – it can reap multiple rewards.

This is a reason why multiple people are waiting to view show homes from particular entry-level city developments, in order to reserve them before they sell out. It’s no surprise that trends like this are likely to continue with the influx of new government schemes such as Help to Buy equity loans being exclusive to new-builds.

Although, the concept of off-plan seems really simple and straight forward, it is crucial that you do your own research and acquire sufficient knowledge of not only what off-plan means, but also knowledge of the location you’re looking to invest in and the developer. Its always recommended to do lots of research prior to such a big investment so that you don’t end up throwing your money down the drain. It’s also not as easy to get a mortgage as many may believe, so we strongly advise you to speak with one of our specialised property consultants to find out exactly what you need to do and have in order.

The Pros and cons associated with buying off-plan

As with any other investments, it’s important to rule out the particular risk and advantages before making such a big decision. To save you time, we’ve condensed the important things you must factor in before making uninformed decisions.

Advantages

  • Off plan properties are usually sold at a discounted rate of the purchase price enabling you to stretch your money more and secure one of the prime plots. The term used to describe this is called ‘Below Market Value’ or BMV for short – keep an eye out for developments like this as you can buy an increased value property for a lot less. (Click here to find some of our BMV properties offering up to 20% off).
  • Purchasing an off-plan property could mean that the property is worth more than what you initially paid for it by the time it is complete.
  • Certain developers allow you to choose your own fixtures and fittings from a range of available options.
  • Many government schemes such as the Help to Buy equity loan are suitable for many off-plan properties.
  • Many off-plan properties have flexible payment plans to assist your purchase and may include other benefits such as furniture packages, parking options or even reduced stamp duty and legal fees.

Disadvantages

  • If you decide to pull out of the contract before the property is built, you’ll lose your reservation deposit.
  • If you fail to complete the purchase (or simply can’t) you may be sued
  • Many mortgage agreements are only valid for a period of up to 6 months, meaning you may need to keep re-applying in accordance to the properties completion date.
  • It may take a long time after agreeing to buying the property until you can move in – of course this all depends on scheduled time of completion (Some developments may finish earlier whereas others may be delayed a couple months).
  • A large majority of lenders do not offer mortgages designed for off-plan properties.
  • If you move in before the whole development is complete, you may be forced to live alongside construction work for a certain period of time.

Things you should think and ask about when buying off-plan property

The reputation of the developer – It’s imperative to do your own research on the developer you’re looking to invest in – a simple google search can help. Read as many reviews as you can find and keep an eye out from any bad press in the past.

It’s also crucial to look at prior developments built by the developer and to see if they match the pictures in the brochures. Not only will this help build trust, but it will also ease your worry if no red flags come to attention.

Room for negotiation – Its worth testing your hand to see if you can get a discount (if not already BMV) on any properties. In general, investors and cash buyers usually get the largest discount if they purchase more than one property, but it’s still worth a shot if you’re only purchasing one.

Most developers are willing to negotiate as they need the money to fund the rest of the project. Worst case scenario you won’t get a discount, but it doesn’t hurt to try and you may be offered other types of benefits and incentives instead!

Property Protection Enforced – Make sure you ask your property solicitor to check the developer has insurance as a precaution in case they go bust or fail to complete the rest of the development.

Access Issues & Disruptions – It’s best to check if there will be any access issues once you move in if your property is one of the first that’s built. A few developments are faced with ‘unadopted roads’ in which local councils won’t claim a private road and take over the costs and responsibility for its maintenance.

During circumstances like these, they may force homebuyers to pay the price of managements and/or service charges in order to maintain the roads and green spaces.

The issues with mortgages when buying off-plan

Due to the development not actually being built, you may face yourself with a few issues in regards to securing a mortgage or sustaining one.

As a general rule of thumb, mortgage offers are usually valid for only 6 months – after this period you have to resubmit a new application. On very few occasions (usually due to a change in circumstances, living costs and/or differing finances) you may be declined a new mortgage and will be left having paid a non-refundable reservation fee without being able to secure a new mortgage.

Fortunately, many new mortgage lenders are now offer longer validity periods for them. More banks are also now adopting a more flexible approach and are offering 12 months as a standard on new-build applications. Some others allow 6 month extension periods.

A step-by-step guide on the process of buying off-plan property

  1. Do your research and find a developer who is suitable. It’s always best to speak with a property consultant to help you find the best developments for your requirements.
  2. Consult with a mortgage broker about your current financial situation and circumstances.
  3. Reserve the property you want and pay the reservation fee.
  4. Elect a qualified conveyancer to handle the legal side of your property purchase.
  5. Get a mortgage – A valuation will then be made based on the development specifications and plans.
  6. File all the paperwork and complete contracts making sure to pay your deposit.
  7. If possible, arrange for a surveyor to assess the property a couple weeks before the final completion for any defects.
  8. Prepare for completion, you will be given 2 dates of completion – The short stop (The expected completion date). The long stop (The date the development must be completed by).

What does it mean to Flip Property?

‘Flipping’ means when a buyer purchases a residence off-plan and attempts to sell it for a higher amount once the development is complete. Few people try to sell it before the development is finished.

The reason they do this is because as stated earlier, the price you buy your off-plan property at the start is usually lower than it’s final valuation price, hence allowing house ‘flippers’ to make profit simply by ‘holding stock’ and selling it at a later date.

However, there are a few implications associated with this, the first is that demand can quickly dry up if too many investors buy the same type of development and try to sell it at a later point, adding saturation to the market.

The second reason this may cause an issue is that it can be hard to get mortgages for this specific investment. For those interested in house flipping, it’s necessary to check with your developers prior and mortgage lender to work out the cost of an advance if you can’t sell the property. This does not apply for cash buyers, for obvious reasons.

If you’re interested in learning more about what buying off-plan property means or would even like to invest in some, get in touch today and speak with one of our highly experienced property consultants so we can tailor your experience and offer you developments for your requirements.

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