Buying a home before it is even built is a daunting prospect, but can offer huge rewards for those who take the plunge.
A so-called 'off-plan' home can be secured months or even years before it is completed.
To give buyers an idea of what they are getting for their money, sellers often create computer-generated images of how the homes are expected to look. Sometimes they also set up a show-home as an example for prospective buyers to walk around and get a feel of.
Customise your home
One significant benefit of buying a property before it’s finished is that buyers can often contribute to the overall design or layout to create more a bespoke home.
For instance, off-plan buyers of town houses at Argyll Place, Kensington can use a doll's house replica to design the layout of the top floor.
Wangle a discount
In a market where house values are rising, buyers can lock in a price-tag at the outset and by the time of completion the home may already be worth more than what they are about to pay for it.
Of course, whether house prices will rise is a big gamble. Before the market crashed in 2007 when prices were going through the roof, this method of buying was very popular. Investors would often sell on a home the moment it was completed and would have already made a pretty buck.
Market prices aside, one of the main benefits of buying off plan is that you can negotiate discounts because developers want to sell the properties as soon as possible.
“Buying off plan is a high-risk strategy in the current market, but if you’re looking at substantial discounts of up to 40% it may still pay dividends. The first and last properties on a development are the ones the developer is most anxious to sell and are where the best deals are to be found,” said Nick Evans of Stacks Property Search.
“Developers will be pressurised towards their year end, so that may be the time to put in a silly offer,” he added.
You can often get a more of a discount if an example show-home has not yet opened or been built. In this situation, it’s a good idea to check out property from the developer that you are looking at that have already been built to “familiarise yourself with their product”, according to Guy Jenkinson, head of new homes at property consultancy Bidwells.
If you can’t look around a prospective home before buying, you need to pore over the plans.
“I know it sounds obvious, but you must look and be aware of where the development is going to sit in terms of surroundings, noise, traffic, safety and amenities. Then, carefully look at where your off-plan unit sits within the apartment block or street scene,” added Jenskinson.
You should make a checklist of all the things you would think about when buying a home that you walk around. For instance, think about which way your garden faces, whether your current furniture will fit, check the size of all the rooms.
Before signing on the dotted line, check completion dates for all phases of the development. You run the risk of living on a building site for months or even years, if it’s a large development and yours is one of the first homes completed.
Check you can get the funding
Once you have settled on a price you are happy with, you need to turn to the most important part of the process: Checking you can get the funding far enough in advance to complete the sale.
Standard mortgage offers often come with a six-month deadline to take up the deal, though some lenders offer tailored products.
David Hollingworth, of mortgage broker London and Country, commented: “Halifax offers some specific new build products that carry longer completion deadlines than other products [to end of October at the moment].
“Of course, there are still potential risks that the build is delayed, forcing any mortgage to be approved again and a new rate selected.”
Lenders consider new-build homes to be higher risk, in terms of holding their value, so will you usually need a bigger deposit than you would on an older home. Though the Government NewBuy scheme, where you only need a deposit of 5%, helps side-step some of these issues.
Mortgage broker Jonathan Harris said: “Buying off-plan is often a bit of a gamble so it's important to seek independent mortgage advice from a broker familiar with the problems that might arise. Some lenders won't go above 80% loan to value on a new-build house or even 75% on a new-build flat.”