The purchase of a new build house differs from the usual conveyancing process. Your solicitor will need to make additional investigations about the property, connecting services and surrounding areas which would not necessarily be required with an already established property.
Here are the key facts you should be aware of when purchasing a new build property:
Completion on Notice
The majority of new builds are still in construction at the time the developer places them on the market – it is likely that you will have only had sight of the show home when you put an offer in.
Purchasing a property off plan will mean an exchange of contracts with completion on notice. Your contract will state that completion will take place following a specified period of days after receiving notice from the seller that the property’s construction is complete.
Delays in construction will lead to delays in completion and could throw off your plans for financing.
Finance
Most mortgage offers are valid for six months from the date of issue and you should have your mortgage offer in place before exchange, most developers will require this in the contract.
Following exchange you should diarise your offer expiry and request an extension from your lender if it doesn’t look like completion will take place in time. Whether an extension is granted is at the discretion of your lender. If there has been a change in your personal circumstances or the financial market then they may not grant an extension on the same terms.
You will be under a contractual obligation to complete the purchase and will therefore need to secure further funding or risk losing your deposit and the property.
You may also be using a Help to Buy (‘HTB’) Equity Loan which is offered on new build properties. A HTB Equity Loan is different from a HTB ISA and you should inform your solicitor if you plan to use the loan. Your solicitor will advise you on the terms of the Equity Loan and arrange for funds to be ready for completion.
Selling Your Current Home
If you are selling your current home and hoping to complete at the same time, you will need to make your buyer aware that completion will need to be on notice as they may not be willing to wait around. Problems can arise at this stage and you may wish to break the chain and move into rented accommodation to avoid losing your buyer.
Reservation Fee
Most developers require a reservation fee at the time an offer is made on a property to ensure the buyer has a genuine interest, such fee will then be deducted from the purchase price on completion. There is usually a term in the reservation agreement that if exchange has not taken place within a certain timeframe, the developer may re-market the property and the buyer will lose their reservation fee.
Deposit
The usual 10% deposit will be required on exchange. The developer is likely to request that the deposit is held by them as agent following exchange, this means that the developer may spend the money.
While the developer will still be legally obliged to return your deposit if they default and you could sue for this sum under the terms of the contract, in reality recovering the money may not be so simple. Although new build warranties will usually offer protection for your deposit in the event of a developer going insolvent.
Your Solicitor
The legal aspect of buying a new build home is more complex than a usual house purchase and a varying number of issues could arise during the due diligence process including unfinished agreements for roads and drains to non-compliance with planning regulations. Your solicitor will need to be thorough throughout and ensure that the contract terms are in your favour.
Building Warranties
As you are bound by contract to purchase a property which hasn’t been built and therefore you haven’t physically inspected, developers will often offer a ‘snagging provision’ in your contract.
Following completion, you will be able to submit to the builder a list of any defects to be rectified within the first two years of purchase. Thereafter your building warranty will cover structural problems, this is likely to be for up to 10 years.
We specialise in the area of new build properties and can assist you with a smooth and easy conveyancing process. For more information and to find out how we can help you, please contact Kirstie Philpott by email or call 01279 712575.