The Government aims to build around 250,000 new properties every year. If you are a first-time buyer, you may well be considering buying a new build property not least because the Help to Buy Equity Loan only offers funding for these. New builds are also often sold under shared ownership terms, which can also be attractive to first time buyers.
Purchasing a new build is different from buying an existing property; here are some of the reasons why:
- You need to pay a reservation fee/deposit (often non-refundable)
- You don’t get to view the property in person before you exchange (unless it has already been built)
- Exchange must take place within 28 days after you have reserved the property
You’re not normally given a guarantee date by which the property is going to be built because these projects often overrun. Unfortunately this can sometimes mean that your mortgage offer expires.
Many solicitors claim that new build conveyancing is more complex than standard conveyancing. It is also the case that much can go wrong on the developer’s side. There might be a failure to arrange NHBC inspections, non-compliance with planning regulations, incompletely-built sewers and roads and failures to ensure plans are in place for future maintenance, among other issues.
You are therefore strongly advised to instruct a solicitor with new build experience who is able to ensure the process goes as smoothly as possible while also charging you a fair price for conducting the conveyancing process.
Don’t ever feel pressured into using a solicitor recommended by the property developer. You should always use a solicitor you feel would work best alongside you throughout the transaction and whom you can rely on to be fully on your side. A solicitor who also has ties with a developer is potentially at risk of a conflict of interest.
How can you exchange in 28 days when your home hasn’t been built?!
When you buy a property ‘off plan’, it means that you’re purchasing the property purely based on the information the developer has given you, including how it’s going to look when it’s finished.
To secure your offer, you have to pay a reservation fee for the property following which you have 28 days to complete the legal work. You have to pay 10% of the property’s purchase price on exchange (or 5% if you are buying using the Help to Buy Equity Loan Scheme) and at this point you are legally bound to purchase the property.
With a standard freehold conveyancing transaction, it normally take around 8 weeks to complete and a standard leasehold conveyancing transaction takes a little longer, around 12 weeks, because there’s more work required.
It’s clear therefore that if you’re buying a new build, you need to instruct a solicitor who is able to fit in all of the work that would be required for a more standard conveyancing transaction but within a 28-day exchange timeframe!
The developer’s solicitor sends the draft contracts and the title documentation to your solicitor within the 28-day period. When these have been received, your solicitor assesses the title (and the lease, if applicable) to highlight any potential issues that the agreement contains.
If you instruct a solicitor who charges by the hour, they measure the time spent on any additional work and add it to your final bill. You are advised to instruct a solicitor’s firm offering a fixed fee quote, but you should still check the small print in their terms & conditions to ensure that you won’t end up paying any additional fees.
You should also note that you might be charged additionally if you are exchange in less than 28 days.
More on the extra legal work and costs involved…
As the property hasn’t yet been built it won’t have been registered with the Land Registry. The developer’s solicitors will have drafted the title (and the lease if the property is a leasehold) and it’ll have to be registered for the first time, whereas, if the property is an existing one, it will already have been registered.
Your solicitor sends the Land Registry the registration documents after you’ve moved in. First time registrations can only be sent through via Royal Mail and can’t yet be processed online. The Land Registry charges twice as much for a first registration as it does for an update to its register which accompanies the conveyancing of an existing property.
Will you need a survey on the property?
You might expect a new built property to be free of defects, unlike a ‘second hand’ property, but this isn’t always the case. When you purchase a new build, you get a warranty which covers the costs of putting right any damage the property may have. The trouble is, not everything is covered by the warranty including things like:
- Kitchen units not aligning
- Cracked tiles
- Boiler leaking
- Broken fittings (e.g. showers leaking)
- Bad paintwork
Issues such as these can be extremely frustrating, given that you’re buying a completely new dwelling. That’s why you should instruct a surveyor to carry out a snagging survey on the property before you finally complete. This gives you time to ensure that the developer fixes any problems that may have arisen while the property was being built.
What happens if your mortgage offer expires?
Even though you have to exchange within 28 days, it’s fairly likely that you won’t be given a completion date during this time or even for some time afterwards, while the developer completes the building work.
Most often, when they’ve finished building your property, the developer gives you a 14-day notice to complete. You therefore need your mortgage offer to be in-date at this point so your solicitor can draw down the funds and allow you to collect your keys.
For many buyers, the time between exchange and completion of the build will be less than three months, meaning your mortgage offer will still be valid if it has an 6-month expiry date. However, sometimes the building work can be delayed or the projected finishing date is set for more than 6 months away.
You need to ensure that you have your mortgage offer before exchange (so that you know you can fund the purchase), but, if it then expires you will need to apply for its renewal.
There’s unfortunately no guarantee that your mortgage lender will give you another mortgage offer if it expires. You should therefore make plans just in case you suddenly have to get an offer from another lender.
If your completion doesn’t go ahead, the developer may give you a further 14 days (depending on your contracts) to complete but this may will include daily interest charges. If after the additional 14 days you still fail to complete on the property, then the developer will most likely rescind your contract, you will lose your 10% deposit and you may also be liable for the developer’s legal costs.
NB Even if you are using the 5% Help to Buy Scheme you are still liable for 10% of the purchase price if you fail to complete: you have to make up the other 5% from your own funds.
In sum, if all goes to plan, you’ll hopefully have bought a spanking new dream home for yourself at the end of your new build conveyancing process, but you’ll always put yourself in a better position if you instruct an experienced conveyancing solicitor and get a snagging survey.