Buying a property 'off-plan’? What do I need to know?

Buying a home before it’s been built has its pros and cons. We explain everything you need to know and be wary of, before buying an off-plan property.

This article aims to provide a comprehensive overview of the legal aspects of buying off-plan properties, including the advantages and disadvantages, key considerations, and common pitfalls to be aware of.

We will also address the necessary steps and precautions that you and your solicitor should take to ensure a successful transaction.

What does ‘off-plan’ mean?

Buying a property 'off-plan' refers to the process of purchasing a property before it’s been built.

When you buy a property off-plan, you are essentially buying a plot of land or a unit that is yet to be constructed.

What are the advantages of buying a property off-plan?

1. Price advantage: Off-plan properties are often sold at a lower price than completed properties, which can ultimately represent a good investment opportunity for buyers.
2. Flexibility: Buyers have the opportunity to customise their property to their own taste, with options such as flooring, kitchen and bathroom fittings, and paint colours.
3. Potential capital appreciation: The value of the property is likely to increase as the development progresses, meaning a potential return on investment for the buyer.
4. Possible tax benefits: There may be certain tax advantage when purchasing an off-plan property. Depending on how the purchase is structured, for example, you may buy the land on which the home will be built, and then contract with a separate developer to build the property. This may mean that you might only pay Stamp Duty Land Tax (SDLT) on the price of the Land. New build properties are also zero-rated for VAT.
5. Choice: Off-plan properties can offer a wider range of choices for the buyers, such as location, size, layout, and design. With new development, for example, you can choose the most suitable specification for your needs.
6. Modern, new and efficient: As the property will be brand new, it will be built to the latest building codes, standards and energy efficiency regulations. This will mean the latest and most efficient boiler, insulation, thermally efficient windows etc.
7. Reduced maintenance: Since the property is new, it should require less maintenance and repairs. If there are any snags then these should be covered by the developer's guarantee and any third party warranty.

What are the disadvantages and risks when buying a property off plan?

Buying off-plan requires a level of confidence in the future. Equipping yourself with as much knowledge on the process as you can before you begin is essential. Sort your finances out, negotiate hard, do your homework and instruct a conveyancing solicitor as early in the process as possible.

1. Property price uncertainty: Your home could be worth more or less than you paid for it when you move in. The extended period between exchange of contracts and completion can work in your favour. If property prices increase in the interim, your new home will be worth more than you paid for it by the time you move in.
   
   If the market declines, however, your new home will be worth less than you are paying for it and you may have difficulties securing a mortgage.
2. Mortgage lender unpredictability: Depending on the size of the deposit, your lender may not view the property as adequate collateral for the loan. In this case, you would either have to raise a larger deposit or speak to another lender.
   
   If you are ultimately unable to obtain a mortgage you could lose your deposit. The lender may even try and sue you to recover their costs.
3. Potential completion delays: There will then be a long period (sometimes years) between exchanging contracts and completion day. During this period, complications could arise. The completion date of an off-plan property can be subject to change, which can cause inconvenience and added costs for the buyer.
4. Changes to the final specification: The finished property may differ from the original plans and specifications, which can lead to disappointment or dissatisfaction with the final product.
5. Lack of transparency: It can be difficult to fully understand the plans, specifications, and materials that will be used in the construction of an off-plan property.
6. Financial risks: There is a risk that the developer may not be able to secure funding for the project, which can lead to delays or cancellation of the development.
7. Regulatory risks: There is a risk that the development may not comply with local building regulations, which can lead to legal issues and added costs for the buyer.
8. Unforeseen issues: There is a risk that unforeseen issues may arise during the construction process, which can lead to delays and added costs for the buyer.
9. Possibility of cancellation: There is a possibility that the project may be cancelled due to a variety of reasons, which can leave the buyer in an uncertain position.

What is the process when buying a property off-plan?

Although the process may vary to some extent, depending on the developer and the specific property, the key steps are as follows:

1. Research and selection: The first step is to research the different off-plan properties that are available and select the one that best suits your needs and budget.
2. Reservation: Once you have selected an off-plan property, you will usually be required to pay a reservation fee to secure it. This fee is usually a small percentage of the purchase price and is non-refundable.
3. Instruct a solicitor: You will need a conveyancing solicitor to advise you throughout the purchase process. It is a good idea to select a solicitor with experience in off-plan transactions.
4. Contract review: Before making a final decision, you should review the contract and the plans, specifications and any other documents provided by the developer. Your solicitor will also review the contract and other legal documents, and they will advise you before you sign the contract.
5. Exchange of contracts: Once you and your elicitor are satisfied with the contract, plans and legal documents, you will exchange contracts. This is a legally binding agreement between you and the developer.
6. Payment of deposit: A deposit, typically 10% of the purchase price, is usually required on exchange.
7. Construction: The developer will then begin construction on the property. During this time, you will likely be kept informed of progress through regular updates.
8. Stage payments: Depending on what you have agreed with the developer, there amy be incremental payments due as the build progresses.
9. Completion: Once the construction is complete, the developer will provide the keys to the property and the balance of the purchase price will be due.
   
   Your conveyancing solicitor will take care of the legal completion process, which includes transferring the ownership of the property to the buyer and registering the property with the land registry.

What should I check before buying an off-plan property?

1. The developer's reputation and track record: Research the developer's reputation and check for any previous projects they have completed
2. The plans and specifications: Carefully review the plans and specifications for the property, including the layout, size, materials and fittings that will be used in the construction.
3. The location and surrounding area: Research the location and surrounding area of the property to ensure that it meets your needs and that it is in a desirable area.
4. The contract and legal documents: Your conveyancing solicitor will review the legal documents and ensure that they are in order before you sign the purchase agreement.
5. The completion date: Understand when the property is expected to be built by and be aware that it could be subject to change.
6. The payment schedule: Understand the payment schedule and any potential additional costs that may be incurred.
7. The warranties and guarantees: Review any warranties and guarantees that are provided by the developer and ensure that they provide adequate protection for the property.

   If the developer is not offering a warranty (not all do), you should possibly consider buying from another developer. A warranty is one of the major benefits of buying a off-plan.

   The majority of developers in the UK will be registered with the National House Building Council (NHBC), but there are other equally acceptable warranty providers, including Zurich, Local Authority Building Control Warranty (LABC) and Premier Guarantee.

8. The contract's contingencies: Understand any contingencies that are included in the contract, such as a mortgage contingency or a contingency that allows you to walk away from the deal if certain conditions are not met.
9. The Reservation Agreement: review the reservation agreement, which is a legal document outlining the terms and conditions of the reservation.
10. Your finances: At the point of exchanging contracts, you are legally committing to complete on the purchase of the property once it has been built. If you fail to complete you won’t only lose your deposit, but your developer may sue you.
    
    Savvy off-plan buyers will have a contingency plan in place in case their financial circumstances changes.
    
    Contingency plans may include alternative funding sources or being prepared to inject more cash into the deal. Ensuring that the purchase does not ‘max you out’ would be ideal, as it leaves some margin if the property market declines between exchange and completion.

Can I 'flip' an off-plan property?

If you find yourself unable to complete on the purchase, it may be possible to 'flip' the property. Flipping is when you sell (assign) the right to buy the property to another buyer between exchange and completion.

Example: If property prices go down:

Example: If property prices go down:

Flipping the property could therefore be loss-making if the market falls between exchange and completion. It may still be the preferable option if you don't lose all of your deposit or if the developer is threatening to take legal action.

However, the above example highlights the importance of having a financial buffer when buying off-plan.

You should also make sure that the contract of sale includes a right for you to assign the right to purchase to another buyer if you cannot complete. Ask your conveyancing solicitor to confirm this before you sign the contract.

Meet the developer with a clear strategy in mind

When you meet the developer you will probably visit a show home and look at plans and a virtual 3D model of the home.

If you decide to buy, the first thing you will do is negotiate a deal with the developer. As with any seller, the developer will be expecting a negotiation and will usually begin with a higher asking price.

Negotiating on a new build purchase won't be solely about the price. At this early stage, the developer may be offering various incentives including:

• paying your deposit
• free fixtures and fittings
• free carpets/flooring etc
• kitchen upgrades
• a turfed garden
• paying your Stamp Duty

The developer may also encourage you to use their preferred solicitor. Developers have received a fair amount of bad press over recent years. Substandard build quality, hidden costs, leasehold houses and spiralling ground rents are a few of the scandals that have hit the industry.

Buyers are advised to instruct an independent conveyancing solicitor to avoid any potential conflict of interest.

Ideally, you should have a solicitor lined up at the point you agree to buy the property.

Read more:

Should I be wary of buying a leasehold house?

What you need to check before buying a new build property