Buying off-plan? How to make sure your deposit is as safe as houses
Purchasing a house or flat before it's been built, known as off-plan, can be a great way of potentially grabbing a property in an up-and-coming area at a bargain price.
With schemes such as Help to Buy equity loans and the supposedly upcoming Starter Homes Initiative for first time buyers in England (no start date has yet been announced), it continues to be a popular way to get on the property ladder.
But because of the risks involved - the housing market can go down as well as up, for instance - it's important to take steps to protect your deposit just in case the developer runs into problems.
Avoiding potential deposit problems
There are a number of things you can do to protect yourself and your deposit, especially as buying off-plan isn't always totally straightforward:
- Carefully check out the developer involved. What is their track record? Do they finish their projects on time? Is there a finished development you can visit? How is the developer funding the scheme?
- Make sure your deposit is placed in a separate deposit, held on trust and guaranteed by an independent warranty provider recognised by the UK Council of Mortgage Lenders which will either complete the development if it hits problems or repay your deposit;
- Be especially careful if you are depositing more than ten percent. Usually there is a cap of £100,000 or ten percent (whichever is lower) when it comes to an independent warranty. Anything over and above this is at increased risk;
- Ensure the developer is registered with the National House Building Council, or an equivalent organisation, which means your deposit should not only be protected but once the property is built, will be covered by a ten year insurance and construction warranty;
- Instruct a specialist conveyancing solicitor, such as Wards Solicitors, to check the contractual and financial arrangements with a fine tooth comb. For example, ensuring there is a firm deadline for the completion of the building work, that the finished property is the same size as originally advertised and that the developer has insurance to cover going bust or failing to finish the development.
Recent court cases
Two recent cases show how important is to use a specialist solicitor:
- The High Court has ruled that the interests of just three off-plan buyers, who had registered what is known as a unilateral notice to secure their interest in the property before the lender registered its mortgage, came before other creditors when the developer went into administration. This included 47 other people who had also bought off-plan but without registering a unilateral notice. (Williams & another v Broadoak Private Finance Ltd and others (2018))
- After the developer of a 131 flat project - in which each buyer had paid a 50 per cent deposit - went into liquidation, the High Court ruled that that the buyers were protected because their 'purchasers' lien' was attached to the airspace that their flats would have occupied had they been built. This meant they were treated as secure creditors and would be paid out from the sale of the site.(Alpha Students (Nottingham) Ltd (In liquidation) v Eason and another (2017))
For more information, or to discuss buying and/or selling property, please contact Wards Solicitors' specialist New Homes Conveyancing Team.