Buying Off-Plans Property In The UK – Is It Easier Since COVID?
The UK government was committed to building new homes long before COVID19 struck.
Housing is always an Election hot-topic, and for Boris Johnson and the Conservatives, some big promises were made. For example, the construction of one million homes in the first five years.
The government has an extra incentive to support homebuilding – to stimulate the economy badly hit by COVID-19. Did you know in the first three months of 2021, the UK added 50,000 new homes? Since the pandemic, let’s see if buying off plans is an attractive way to get your own home.
Like many countries, the UK has struggled with much lower than acceptable economic activity levels across the nation. The months in lockdown has knocked business confidence and resulted in job losses. Stepping in to save the day, the UK Government is funding the way out of the economic collapse escalating construction and infrastructure projects’ rollout.
Stimulating jobs and economic activity in the cities and the regions with new homes en masse is also an opportunity for renters to buy off the plans to secure a home they can call their own.
First home buyers have struggled for decades to get onto the property ladder.
Did you know a third of people in Homebuyers in the 35-44 age group are renting compared to just one in ten in 1997?
Lack of supply of available homes has recently seen house price inflation go through the roof!
The real estate sales sector is busy with homeowners on the move. Since COVID-19, the city dweller has been eyeing a move to the regions where the pound goes a bit further. Lockdowns have been hard on folk living in apartments or terraced houses with no outdoor space.
While homes in the UK are typically tiny, the promise of a garden is pulling Londoners beyond the city walls like bees to honey! Typically the regions represented the best areas for first home buyers, but they now have more competition, so their strategy to get on the property ladder will need a reboot.
Off plans look very attractive – so what do you need to know about this approach to getting your own home?
Buying “off plans.”
Buying “off plans” means buying property before it’s built. The main advantage of this is that buyers typically get a discount on the price. The further ahead you buy, the more of a discount you are likely to be offered as a rule of thumb. The main disadvantage is that the purchase process is more complex than it is for the completed property.
Choosing a home
The challenge is usually finding the right home for your needs, wants, and budget with the established property. With off plans, finding a property is generally fairly straightforward. The challenge is doing your research on the developer. Essentially, you need to ensure that you’re dealing with a company with a solid track record of delivering to specification and on time.
Securing a home
Buyers typically pay the seller an advance of 10% of the agreed purchase price upon exchanging contracts with the established property. It is highly unusual for sellers to request anything more.
With off plans, the reservation deposit is likely to be a minimum of the purchase price. It can be as high as 30%. That said, the purchase price is going to be lower than for an equivalent pre-built property.
Off plans and the Lifetime ISA
First-time buyers should note that it may be challenging to finance this purchase by making a withdrawal from a Lifetime ISA. This is because LISA rules require purchases to be completed in a maximum of 180 days.
More specifically, they should be completed within 90 days. However, the conveyancer can request an extension of 60 days and a further extension of 30 days. Many home builders start their off-plan sales a year or more before completion. This means that there can be a minimal choice when there are only six months left to go.
If you think of buying an off-plan property with a LISA, it’s advisable to have the contract state that the builder will pay the withdrawal penalty if completion is delayed. This will ensure that you are protected if the project over-runs.
Financing off plans
Getting a mortgage for an off-plan can be trickier than getting a mortgage for the pre-built property. That said, mortgage lenders are steadily opening up to this market. In particular, they are starting to make mortgage offers valid for up to a year instead of just six months. They may also be more flexible about extending them further if the project overruns slightly.
On the plus side, off plans are eligible for homebuyer grants such as the Help to Buy scheme. Combining direct homebuyer grants (e.g. Help to Buy) with indirect homebuyer grants (e.g. the LISA) and the standard off-plan discount can help first-time buyers climb the property ladder.
Prospective first home buyers in the UK have waited some time for an opportunity to get on the property ladder.
While it may be some way off before the move-in date, homebuyers buying off plans has the most challenging part of the property search behind them.
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