Buying off-plan & worried about financing the purchase? It can be easy! Find out the pros, cons & how to get an off-plan mortgage in our expert guide.
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Author: Pete Mugleston - Mortgage Expert, MD
Updated: February 23, 2022
New build properties are very popular, especially with first-time buyers, but in order to snap them up for a good price, you often have to buy them before they’re built.
To complete the purchase, you’ll likely need what’s called an off-plan mortgage.
By following this guide you’ll have all the information you need about how to get this type of home loan, what the process involves and where to find the best deals for your circumstances.
The following topics are covered below...
What is buying off-plan?
Buying off-plan means you’re making a purchase based purely on plans you’ve seen for the property.
Floorplans, price lists, a showhouse and virtual tours can give you a great idea of what the finished product will look like but ultimately it’s still somewhat of a leap of faith.
If you decide to take the plunge, you pay a deposit and then find yourself a mortgage.
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Can you get a mortgage for an off-plan property?
Yes, although they can be a little harder to get compared to traditional mortgages. This is because lenders are traditionally risk averse and an unfinished property means there’s that element of the unknown.
For example, it’s one thing to value a property based on the idea of it, but the value in reality might differ. This is why they’ll also likely want to value the property themselves at the time of offering the mortgage and again when the house is complete.
Valuing new-build properties can be a tricky process as it can be much more difficult to gauge how popular new residential areas are going to be in the long term.
If a property has to be repossessed a lender needs to know they can recoup their money. If they misjudge the demand then they could incur losses.
So, buying off-plan carries some risk for both the buyer and the mortgage provider. Despite this, thousands of people acquire off-plan mortgages every year and working with an experienced broker who’s been through the process many times can ensure it’s a smoother one for you.
How to get an off-plan mortgage for a new-build
Presuming you’ve selected a property already then follow these quick and easy steps to get your mortgage application off to the best possible start:
Step 1: Research the developer
It’s important to make sure they’re reputable and reliable. Perhaps look online at their previous work and read the reviews of buyers. Once you’re happy, negotiate a price that works for you.
Top tip: Sometimes the end of the financial year of making an offer when most units have already sold can also bring a little discount.
Occasionally developers are able to throw in certain freebies like the costs of fittings or even stamp duty too. At this stage, you should also agree on a deposit amount, ask for a move-in date and pay a reservation fee – usually around £1,000 – to hold the property.
Step 2: Connect with an experienced broker
Matching with someone experienced in the new build market means tailored advice on this specific process.
They can then help you submit a mortgage application to the best placed lender for you, factoring in your specific financial situations.
Got bad credit, a low deposit or debt? They can help with all of that and improve your chances of getting a good deal.
Step 3: Engage a solicitor to handle the finer details
It’s best to use a different one to that recommended by the developer just to avoid any potential conflicts of interest.
They can help you pay the deposit and exchange the contracts within 28 days of paying the reservation fee.
Warning: you need to complete the sale within six months of getting your mortgage approved otherwise it could expire and you may have to re-apply with the lender to extend the mortgage offer.
Some lenders do, however, offer six month extensions and gradually more are offering 12 month terms.
Step 4: Once the property is ready, get a snagging survey done
This isn’t obligatory but definitely recommended to ensure the property is as it should be. If it is, complete the paperwork and then do a victory dance as you move in.
Our free, broker-matching service will ensure you’re paired with someone suited to your circumstances and with seasoned expertise in new build properties. Make an enquiry to get started.
Anyone eligible to apply for a standard mortgage can apply for an off-plan mortgage. In fact, they’re a great option for first-time buyers or those looking to upsize or downsize.
You just have to consider:
- Deposit. Lenders generally ask for a deposit anywhere between 15% and 35% when it comes to new builds. This is to account for what they see as the higher risk and potential depreciation.
- Proof of regular income. Lenders will assess this against your spending to make sure you can afford the mortgage you’re applying for.
- Credit rating. A good credit score would boost your application as it indicates financial reliability.
- Any debt. How much and the type of debt will play a role in your ability to get the approval you need
- Age. If you’re over 50 some lenders may have concerns but generally they don’t cap the age until 75. Even then, a broker will be able to find you a few lenders happy to still lend.
Depending on your situation, you might also qualify for a government scheme such as Help to Buy or Shared Ownership. This is something a broker could walk you through. They can also let you know of any recent changes as lenders’ criteria can alter which means so too will the different deals available.
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Types of properties available
New builds come in all shapes and sizes which means you can buy a flat, duplex, terraced or detached house. But there can be some stumbling blocks when it comes to other building types such as:
- Homes made with prefabricated steel
- Flats above shops
- Properties made out of wood/timber
- Flats located above the fifth floor
- Houses with thatched roof
- Homes made with corrugated iron
These raise red flags because they have the potential to be more costly to maintain. Again, lenders are thinking about maintenance costs and whether they’ll affect your ability to pay the mortgage.
If you’re thinking of purchasing one such property though, don’t despair just yet. Some lenders are more amenable to certain properties and a broker will be able to guide you through the process.
How working with a broker can help
A quick and free consultation with one of the brokers we work with will put you on the right path for purchasing an off-plan property. In this case, they can:
- Save you time searching for a lender open to off-plan mortgages.
- Compare the best off-plan mortgage rates out there.
- Help find a lender open to your deposit amount.
- Talk you through the off-plan mortgage application process and point out any particular nuances
- Navigate any government lending schemes you might be eligible for in applying for an off-plan mortgage. Perhaps it’s your first property or you plan to buy-to-let once it’s built.
Many of the brokers we work with have built up a huge amount of knowledge across a range of areas as well as relationships with lenders. That means they’ll know exactly who you should be applying to.
They’ll also talk you through the various criteria each lender might have and the best rates you’re likely to find. Together, you can make a decision which mortgage deal is right for you.
Pros and cons of buying off-plan
Like with any purchase, there are advantages and disadvantages to buying an off-plan home. It’s best to consider all of them before deciding on whether this is a road you’d like to go down.
- No one will have lived in the house before.
- You can have a say in the fixtures and fittings.
- The property will be move-in ready, limiting any initial repair or decor costs you’d likely get with another property.
- Consumer protection for new builds means you’re covered for any structural issues.
- Occasionally developers offer discounts.
- You could lose money if you decide to sell soon after moving in as new builds tend to initially depreciate in value.
- Your home may look like everyone else’s.
- If bought on land with a covenant there can be some restrictions for things like building extensions and adding satellite dishes.
- If built on land that’s under a leasehold arrangement, there can also be restrictions.
- Potential delays mean your move-in date might change.
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What insurance and surveys do I need?
If you’re buying a property off-plan you want to make sure it’s up to standard once it’s finally completed. The best way of doing that is arranging your own snag survey through your solicitor, which typically costs between £300 and £600.
This is where a surveyor visits the property – ideally after it’s finished but before completion – and reports any “snags” back to the developer. This could include anything from a squeaky door or poor paint job to something more structural.
Not all developers are fans of snag surveys for obvious reasons and may insist you do it once moved in. If that’s the case, consult your solicitor and get the survey done asap.
Of course, some issues may not present themselves until further down the line.
If they’re structural issues and the fault of the builders then you’ll be covered with the new build 10 year warranty. This also commits the builders to fixing any unfinished or poor quality work within the first two years for free.
For any other potential incidents that could affect the structure – think floods or fires – you’ll need to look into taking out a buildings insurance policy. This is something a lender will want to see as soon as contracts have been exchanged.
It’s also advisable to purchase contents insurance for all the other items inside the home.
Get matched with an off-plan mortgage expert
If buying a property off-plan is something you’d like to explore, a free consultation with a broker specialising in off-plan mortgages can get you off to a good start.
With reliable advice and catalogues of case studies, get connected to a broker today by calling 0808 189 0463 or making an enquiry.
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Maximise your chance of approval with specialist advice from a mortgage expert.
Once you’ve paid a deposit and exchanged contracts you’re legally bound to buy the property. If you’re having serious doubts, reconnect with your broker and solicitor.
Yes. Markets fluctuate and the value may well change. This could affect your mortgage offer.
This depends on the developer and the deal you agree on. Make sure to ask exactly what’s included.
Do your research on them beforehand and also ask your solicitor to look into whether the developer has insurance. Should they not finish your property then that should offer protection.
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Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!