How to: Buy off-plan

Buying off-plan is where a buyer purchases a property before it is actually built using the architect's plans, computer generated images, local knowledge and developer's information.

Buying off-plan is popular when house prices are rising; the idea is that the price is agreed before the property is built and by the time it's completed it's worth a lot more.

The first thing you need to do to buy off-plan is find a property. Property developers will market new developments to estate agents and on the internet. There will be a launch date and perhaps a marketing event where you can find out more information.

Tracey Lowe, sales manager for McInerney Homes North West, says: "In order to get the best insight into the home and to paint a clear picture of how it could look and feel, research is the key. The developer will be able to supply you with the property's layout and room sizes.

"Subject to the progress of the build, buying from plan can also provide an opportunity to choose the kitchen and bathroom furnishings to suit your own taste."
If you need a mortgage talk to lenders and find out what's available. Since the market has started to fall many lenders have become reluctant to lend on off-plan properties so you might need to save a hefty deposit.

Next you need to reserve a plot with the developer. You'll need to pay a reservation fee, normally about £1,000. Contracts are exchanged about three to four weeks later and you'll be required to pay a 10% deposit. If you fail to complete, you'll lose the deposit.
Then it's a case of waiting for the property to be built and this can be anything from six months to two years. You get a couple of weeks' warning before the final completion date. This gives you time to check the property - you can employ a professional snagging company or do it yourself.

On completion your solicitor transfers funds from lender - stamp duty is also due at this point - and the property is yours.

Expert opinion
Melanie Bien, director at independent mortgage broker Savills Private Finance.
"Buying off-plan is trickier than before the financial crisis. The biggest issue will be the valuation as lenders are far more wary as a result of some inflated valuations in the past. The fact that new-build properties fell in value quicker and by greater amounts than second-hand properties doesn't help.

Lenders have reduced the maximum loan-to-values (LTVs) they are prepared to advance. Off-plan is treated as new-build, so you can't borrow more than 80% LTV, with many lenders requiring even greater deposits, particularly on new-build flats."

Advice

Seek independent mortgage advice. A broker who is whole-of-market will know which lenders look favourably on off-plan and will consider higher LTVs if you only have a small deposit.
Save up as big a deposit as possible. With lenders offering lower maximum LTVs than in the past you must have at least 20% of the purchase price to put down - more, if you want one of the more competitive rates.

Websites
www.mcinerneyhomes.com
www.spf.co.uk/mortgages
www.findanewhome.com
www.barratthomes.co.uk

Top Tips

Get in early
This is especially true of phased developments which are released in stages. If the first phase sells and the development takes off prices can often revised upwards and those who got in at the start usually get first pick of what's on offer. You can also choose from the best plots and the ones with the best views.

Negotiate
As well as negotiating on the purchase price, buyers buying off-plan can also haggle over the specifications of the property. These include fittings, fixtures and finishes. You can also request certain kitchens, bathrooms and appliances. Essentially, you have the opportunity to have the property built exactly how you want it.

Research
Doing your homework is vital. Check out the property developer you're buying from, its other developments and the finish of the properties. Also research the area where you're buying - check transports links, schools, crime levels etc. Find out whether other building work in the area will have a positive or negative effect on property prices.

Risk
Buying off-plan can reap rewards in a rising market but it's a lot more risky when house prices are falling. If you agree a price now but the property is worth less in two years time when it's complete you'll be in negative equity straight away. Can you take the risk?