Things to remember when buying off-plan with a mortgage
Before you buy a home off-plan, the majority of developers want to know that you have a mortgage agreement in principle in place - although this can bring with it some unique challenges.
Mortgage offers are only generally valid for a fixed time - between six and twelve months. If the time between your exchange date and completion date is delayed, this may mean that you have to reapply for your mortgage. While some lenders may extend the offer period depending on your circumstances, it’s important to keep it in mind during the process.
Provided you’ve communicated with the developer, however, and have a clear understanding of the build timeline, you should be able to avoid this issue.
Also, remember that the lender may want to perform two valuations - one when you buy the property and another when the property completes. This second valuation can have an impact on how much you pay depending on whether the second value is higher or lower.
If the second valuation is lower than the purchase price, it represents a ‘shortfall’. It’s then up to you to decide whether you challenge the valuation, negotiate a reduced price with the developer to meet the new valuation or bridge the gap between valuation and purchase price yourself.
What is the process for exchanging contracts on an off-plan property?
When you pay your reservation fee, a developer usually insists on a deadline of 28 days for the exchanging of contracts. At this point, you’ll want to instruct your solicitor or conveyancer quickly. Try and choose legal support that has experience in working on developments like the one you’re purchasing.
When you exchange, you’ll also generally pay a deposit on the property - which is usually a minimum of 10% of the property purchase price.
This step of the process represents a legal commitment to the purchase of the property, so make you speak with your legal representative beforehand. You may want to include a ‘get out’ clause in the event that something goes wrong with the build process.