You are buying a new house. At the moment it is an empty plot of land on which your dream home will be built. You have viewed the show house and it all looks fine so you have nothing to worry about – or do you?
A great deal can happen between you viewing the show house and paying your reservation fee and then completing the purchase.
It could be up to nine months or more before the house is ready.
The developer will be pushing you to exchange contracts within 28 days of you reserving the plot and on exchange they will expect you to pay them a deposit of up to 10% of the purchase price.
In the meantime the developer’s conveyancer will be preparing the contract documents and sending them to your conveyancer to approve on your behalf. There are many more documents than you think. Evidence of who owns the land, planning permissions, agreements with the local and water authorities regarding roads, sewers and water connections, general information, guarantees and ancillary documents.
You may have already arranged your mortgage in principle and you will now be making your formal mortgage application when a valuer will be appointed by the lender to make sure the property is suitable for the mortgage and the lender will also be making sure that you can afford the mortgage payments.
You are very excited. This may your first home and all you will be think about is moving in when the property is finished.
However, please take some time to discuss with your conveyancer what can happen between your reserving the property and it being ready to move into.
The developer may have given you an idea of when the property will be finished. They will not give you a definite date. The completion date will usually be 10 working days after they have provided a written notice that the property has been completed.
The guide date can be delayed for a number of reasons. For example, bad weather, shortage of materials and, not so common nowadays by strike action, either directly or indirectly.
You may not be too concerned that there will be a delay but there could be a problem over which you have no control which could prevent you from completing the purchase and this relates to your mortgage.
Mortgage offers typically last for 6 months from the date of the valuation.
Have you thought what could happen in those 6 months?
Your circumstances could change through death, illness, job loss or beak up of a relationship. Any of these could result in the mortgage offer being withdrawn. Lenders are able to withdraw mortgage offers at any time up to the mortgage being completed and in most cases without having to give a reason.
If the mortgage offer is withdrawn you will not be able to complete but the developers will understand won’t they?
Well maybe not. You will have entered into a contract committing yourself to complete the purchase on the contractual completion date. This will be the date mentioned above usually 10 working days after you receive notice that the property is finished.
If you cannot fulfil your side of the contract, even though this may be outside of your control, you will be considered to be in default and the developer can cancel the contract, keep the deposit you have paid and, if you paid a deposit of less than 10% on exchange of contracts, require you to make up the difference up to 10%. You will also have incurred your own legal costs up to that date.
Is there any way of resolving this?
At Morecrofts we believe that contracts for new properties should contain a clause which states that the contract is conditional upon a valid mortgage offer being available at the date of the contractual completion date.
Therefore if this is agreed and the lender withdraws the mortgage offer, the contract can be cancelled and any deposit you have paid can be repaid to you. It may be difficult to persuade some developers’ conveyancers to accept such a clause but our advice would be not to proceed with the purchase of a property on which the developers will not agree to this clause.
Also when buying a newbuild property we would also advise you to have your own surveyor give an opinion on whether the purchase price for the property to be built is reasonable.
We acted for a client who did this and was advised that the purchase price was too high by some £20,000. The developer would not agree to reduce the price and therefore our client did not proceed with the purchase. Her own valuation may have cost her around £300 but this saved her a great deal more in not buying a highly overvalued property.
You have to appreciate that in the short term new properties do not increase in value and with Brexit now less than 6 months away there is still speculation on what effect this will have on property values.