There is a lot of discussion about whether or not you can get a mortgage to buy off-plan. The simple answer to this question is yes, you can get a mortgage to buy off-plan. However, there are some things to keep in mind when you’re looking into this type of purchase. In this blog post, we’ll discuss the ins and outs of getting a mortgage for an off-plan property. We'll also give you some tips to make the process as smooth as possible.

Buying a House Off-Plan: What Does It Mean?

When you buy a house off-plan, you’re buying it before it’s built. This means you'll be making your purchase based on the plans for the property. You won’t be able to see the finished product until it’s completed.

For many people, this can be a bit of a risk. However, there are also some great benefits to buying off-plan, which can often offset the risk. That's why more and more home buyers are eagerly queuing up to view new show homes and developments, in the hope of securing their dream property — before it's even built.

Government initiatives such as the First Homes scheme, which are only available on new builds, have also added to the interest in off-plan purchases. However, buying off-plan isn't always simple. You'll need to do extensive research on the building developer and it may be more difficult to get a mortgage, depending on the circumstances.

How To Buy a House Off-Plan

To buy a house off-plan, the first thing you'll need to do is find a development that you’re interested in. Then it's time to make an appointment to view the plans and discuss your options with the sales team. Show homes are usually available to give you an idea of the finished product. If there is one, make sure to view it. You may also be able to see the plot of land where the development is taking place.

It's important to remember that you’re buying a property based on the plans. This means that there may be some changes made to the property before it’s completed. These changes are usually minor and won’t affect the overall look of the property. However, if you have any concerns, you should discuss them with the sales team before you make your purchase.

After you have decided which property you would like to purchase, you’ll need to put down a reservation fee, which can be up to £1,000. Once the fee is paid, the property will be removed from the market and reserved for you. The next step is to instruct a solicitor and begin the conveyancing process.

You’ll also need to secure a mortgage to purchase the property.Get in touch with John Charcol, and one of our experts will be able to find the best deal tailored to you. The mortgage process can take some time, so it’s important to start early.

The final step in the process is to exchange contracts and pay the deposit. A few weeks before completion, a survey will be carried out to identify any defects that need to be fixed. Once the defects are fixed (if any), you’ll be able to complete and move into your new home.

Questions You Should Ask When Buying Off-Plan

Here are a few questions that you should ask when considering buying a property off-plan:

  • What Is the Developer's Track Record?
    Have they completed similar projects on time and within budget? Asking this will give you an indication of whether or not the developer is reliable and give you a good indication of whether you’re putting your finances at risk
  • Is the Property Freehold or Leasehold?
    If the property is leasehold, you’ll need to be aware of the length of the lease and any restrictions that are in place
  • What Is Included in the Price?
    Make sure to ask about things like flooring, fixtures and fittings. You should also find out if there are any additional costs that you’ll need to pay, such as Stamp Duty
  • When Is the Expected Completion Date?
    It's important to know when the property will be completed, as this can affect your mortgage agreement and your ability to move in on time
  • What Are the Terms of the Contract?
    Make sure that you understand all of the terms and conditions before signing anything. Make sure that you are happy with the deposit amount and the payment schedule
  • Are There Any Discounts or Incentives Available?
    Developers often offer incentives to buyers, so it is worth asking if there are any available. Incentives can include things like free flooring or a contribution towards the deposit
  • How Similar Will My Home Be to the Show Home?
    It’s important to remember that your home will be based on the plans, and not the show home. However, if there are any significant differences, you should ask for an explanation

What Are the Advantages of Buying a Property Off-Plan?

There are many advantages to buying a property off-plan, from paying less, free customisation and government-backed support.

You Will Pay Less

One of the main advantages of buying off-plan is that you can often get your hands on a property before it hits the market. This means that you could potentially save money on your purchase. Developers often release properties at discounted prices to early buyers and this discount could be anywhere from five to twenty percent. In addition, many developers offer incentives, like free parking or a furniture package, to buyers who purchase early.

You Can Customise Your Home

When buying off-plan, you can often customise parts of your property. You'll often be able to choose the finishes and fixtures that you want in your home, before moving in. In addition, you'll also have a longer timeframe to make any larger changes, such as an extra bedroom or bathroom. This can often be done during the construction process.

You Can Get Government Help

You can often get a help-to-buy equity loan when you purchase a property off-plan. This government initiative allows you to put down a deposit of just five percent on your new home. Plus, the first 20% of the property is covered by an equity loan from the government. This means that you only need to secure a 75% mortgage to buy your home.

Your Decoration Costs Are Reduced

If you buy a property that’s already built, you’ll need to pay to decorate to a better standard or simply to your taste. This can be expensive and time-consuming. When buying off-plan, on the other hand, the developer will usually include a standard level of finishes in the price of the property.

You'll Be Protected by Guarantees and Insurances

New housing developments might also come with guarantees, such as the National House Building Council's (NHBC) 10-year warranty. This offers comfort if anything goes wrong with the structures, as you're protected under consumer law. Some builders also give insurance for new properties, which can be useful because certain insurers are reluctant to cover new builds.

What Are the Risks of Buying a Property Off-Plan?

There are also certain risks that you need to be aware of when you’re buying off-plan. Knowing in advance what some of these risks are, will help prepare you for the reality of buying off-plan. If you do decide to purchase an off-plan property, be sure to do your research and choose a reputable developer.

The Final Product May Not Meet Expectations

Since you're basing your purchase on the plans for the property, there is a risk that the finished product doesn't meet your expectations. However, there’s always a possibility that the finished product will not look exactly like the plans, and you may not be able to make any changes to the property once it is completed. This means that you’ll need to be sure that you are happy with the plans before making your purchase.

Your Completion Date Is Uncertain

On building sites, it's not unusual that the completion date for the property may be delayed. In some cases, the completion date may be pushed back by several months or even years. This can often cause financial difficulties for buyers who have taken out a mortgage to purchase their property.

The Developer Could Go Bankrupt

There’s always the possibility that the developer could go bankrupt before the property is completed. In this case, you would lose your deposit. You may not be able to get a refund for any other fees that you have paid, such as solicitors' fees. Conversely, if you pull out of the purchase after the contract has been signed, you may also lose your deposit.

There May Be a Covenant on the Property

When you purchase a property off-plan, there’s always the possibility that there could be a covenant on the property. This means that there may be restrictions on what you can do with the property. For example, you may not be able to make any changes to the exterior of the property.

Mortgages Can Be Difficult to Navigate

Most lenders don’t provide mortgages particularly designed for off-plan property, which can make it difficult to buy.

And, because mortgage agreements are only valid for six months, you may need to reapply if your completion date is delayed. This can be a lengthy and complicated process and you may not be successful in securing a mortgage the second time around.

Your Property May Be a Leasehold

When you purchase a property off-plan, there’s always the possibility that your property will be leasehold. This means that you’ll not own the property outright and will own the leasehold for a limited period. The length of the leasehold will depend on the development, but it's usually between 99 and 125 years.

When the leasehold expires, the property will revert to the freeholder. This means that you may not be able to pass on your property to your children or sell it on when you retire. You'll also need to pay ground rent to the freeholder, which can be expensive.

Mortgage Lenders for Off-Plan Buildings

Some lenders are more hesitant to give out off-plan mortgages in the UK because new build homes, particularly new-build flats, are notoriously challenging to resell. This poses a risk for a lender in the event of repossession, as it’ll be harder for them to sell and recoup their losses.

You may find that lenders have stringent affordability restrictions on off-plan properties. However, with the help of an independent, specialist mortgage broker, you can gain access to a whole market of mortgage lenders and products, greatly increasing your chances of securing a mortgage for an off-plan property.

How Will the Property Type Affect Your Ability to Get a Mortgage for an Off-Plan Property?

Lenders tend to be more hesitant to lend money for non-standard construction homes. This is because certain property types might require skilled craftsmanship and materials, which can be costly and could discourage future purchasers.

The following are examples of structures that might pose a higher risk for certain lenders:

  • Buildings made with prefabricated steel
  • Homes made of wood or timber
  • Flats that are on the 5th floor or higher
  • Homes with thatched roofs
  • Properties made with corrugated iron
  • Flats that are above shops

Some homeowners find it difficult to keep up with their mortgage repayments and property upkeep and, in some cases, they fall into arrears. This puts lenders at risk since they may be required to repossess the property to sell.

Fortunately, some lenders are willing to consider a wider range of property types. Simply use an independent, specialist mortgage broker such as John Charcol — we have access to the widest range of mortgage lenders.

How to Get a Mortgage for an Off-Plan Buy-to-Let

Off-plan purchases may be a fantastic option for investors looking to invest in buy-to-let properties. This is mainly due to any available discounts for early purchases. If you're planning on mortgaging buy-to-let on an off-plan property, it's important to understand that this is different from a standard mortgage.

An investor who’s looking to purchase an off-plan property for buy-to-let purposes will need a different type of mortgage than someone who is looking to occupy it as a homeowner. Many lenders will require that the property is owner-occupied and will not lend money for a buy-to-let purchase.

There are some specialist lenders, however, who will consider lending money for an off-plan, buy-to-let property. It's important to keep in mind that they’ll likely ask for a higher deposit than a standard buy-to-let mortgage. Requirements are usually at least a 25% down payment for a buy-to-let mortgage, but some off-plan lenders demand as much as 35%.

Getting the help of an independent, specialist mortgage broker will be key to access the whole market and find the most suitable mortgage for your needs.

How to Secure a Mortgage When Buying a Property Off-Plan

If you're looking to secure a mortgage for an off-plan property, it's important that you:

  • Find a specialist mortgage broker, like John Charcol, who has access to the whole of market.
  • Understand that the lender may be taking on more risk by lending for an off-plan purchase
  • Be prepared to provide extra documentation about the property
  • Keep in mind that you may need a larger down payment than usual for a buy-to-let mortgage

With the help of an expert, you can increase your chances of securing a mortgage for an off-plan property.

The process of buying a property can be daunting, especially if you're doing it for the first time. But with the help of a specialist mortgage broker, you can make the process smoother and increase your chances of getting the best deal possible.

With over 45 years of experience in the industry, you're in good hands with John Charcol. Contact us today to speak to one of our expert mortgage brokers — we'll be happy to help you secure a mortgage for your future dream home.

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