Buying any new build property is both different and more complex than buying existing property. To ensure your purchase is smooth and stress-free, make sure you get a conveyancing solicitor with plenty of experience in buying and selling new build property. This is particularly important if you are buying a property off-plan [which refers to the situation where the property hasn’t been built yet and all you can see in advance are the plans].
Our experienced property team handle new build conveyancing both locally in Wiltshire, Hampshire and Dorset and throughout England and Wales – from our offices in Salisbury, Fordingbridge, Andover and Amesbury.
How does purchasing a new build differ from other conveyancing?
The sale itself may be a sale of part of the plot. This occurs when the developer owns the whole area of land and is selling off individual plots with properties.
In order to reduce the risk of losing your new build property, make sure that you instruct conveyancing solicitors as soon as you decide to reserve a new build. You should be thinking about obtaining a mortgage offer in time for exchange of contracts. You must therefore let your lender know of the expected completion date (which will always be an estimate) and make it clear that this could be subject to change.
When it comes to completion, the developer will notify you of when the property should be finished. They usually allow you a 10 working day gap prior to completion to inspect the property and produce a ‘snagging list’. This list will highlight to the builders any practical or aesthetic problems you have with the property. Your lender may also require a valuation of the property. You should be aware that even at this point a developer will rarely tie themselves down to a fixed completion date.
Buying a new build flat? Click here to find out more about buying a leasehold flat
Your conveyancing solicitor should be familiar with the tight timescales of a new build purchase. Therefore they need to have a good understanding of what pre-exchange issues and searches must be done. The developer will want a deposit for the property from you at the time of exchange; it is therefore vital that your solicitor has identified any potential issues prior to this point.
Your solicitor should be able to offer you advice on the potential risks of buying a new build off plan. They should also inform you of what pre-contractual obligations are normally agreed at exchange to ensure that you get what you bargained for when your purchase goes through.
Mortgage applications for new builds are subject to special procedures.
How we can help your new build purchase
Whether you’re looking to buy your dream home or are investing in buy to let property, our conveyancing team have a wealth of experience when it comes to dealing with new build transactions. We are frequently asked by developer clients to act as preferred legal advisors for new build buyers. Our experience reaches to leasehold developments as well as freehold purchase, and includes; retirement complexes, shared ownership developments and sheltered housing.
We can help your in your new build purchase by:
- Providing you with copies of all appropriate documentation related to the transaction;
- Dealing with any conditions that your lender may have as pre-requisites to the purchase (such as reinspection or guarantees);
- Drafting full reports on the contract of sale and any relevant documentation;
- Offering specialist advice on obtaining new building warranties; and
- Keeping in touch regularly with the developer’s on-site managers and legal representation to ensure that you are on top of the process of your new build.
Confused by legal jargon? Click here to find those awkward Conveyancing Terms Explained
What is a reservation fee?
When purchasing a new build the developer will ask for a reservation fee, usually between £500-£2,000. Paying the fee and signing a Reservation Agreement means that you have reserved a particular property to buy for a set period (normally 28 days).
If you commit to buying the new build the reservation fee is deducted from your deposit. The developer will usually refund your reservation fee (less administrative and legal costs) if you decide not to continue with the purchase.
How long does it take to exchange contracts on a new build?
Exchanging contracts in a residential property transaction means that you and the buyer/seller are legally obliged to complete the purchase. If either you or the other party cannot continue with the transaction after contracts have been exchanged, you will have to pay compensation to the other party.
When purchasing a new build, you will be required to pay a reservation fee to secure the property for a set period (normally 28 days). This will allow you to instruct a Conveyancing Solicitor and for them to undertake the legal due diligence required and explain certain things to you such as whether the property is freehold or leasehold and what this means. During the time leading up to exchange, you will need to apply for your mortgage. Once all this is completed, you and the developer will sign the contract and they will be ‘exchanged’.
The time between exchange and completion is often much longer with new builds than when purchasing an existing property as the house needs to be constructed. However, once contracts have been exchanged, you can relax, knowing that the project must be completed, and you will soon be getting the keys to your newly built home.
Are there common problems with new builds?
According to House Beautiful the most common problems with new build homes are:
· Incorrectly fitted windows and doors.
· Incorrectly fitting ducting to tile vents or fans.
· Shoddy brickwork pointing (the process of measuring and layering mortar onto the bricks before construction) which can lead to damp and frost damage.
· Badly installed trickle vents which leads to heat escaping.
· Decorating issues such as peeling paint and poor plastering work.
· Incorrectly fitted or non-existent loft insulation.
· Poor sealant.
· Badly fitted or blocked guttering.
All these issues will be picked up in a snagging survey (see below).
What is a new build warranty?
A new build warranty is taken out by the developer to protect you, the buyer. These schemes provide you with a warranty and insurance protection for your property for up to 10 years.
There are three main providers of new home warranties – the National House-Building Council (NHBC), Local Authority Building Control Warranty (LABC), and Premier Guarantee. All run under the Consumer Code for Home Builders.
The NHBC is the most common warranty covering around 80% of new builds.
A warranty lasts ten years. During the first two years, it will cover both major structural and ‘snagging’ issues such as leaking windows, cracks, and poor sealant. At the end of the initial two-year period, the builder will only be responsible for major structural issues such as problems with the foundations, roof, load-bearing walls, and chimneys. In the initial 2 years after completion NHBC provides default action to any problems incurred that are not fixed by the developer. After the 2 years have passed you can seek direct rectification of any structural defaults from NHBC for the following 8 years.
Wear and tear issues and weather damage are not covered by the warranty. Furthermore, damp and condensation will only be covered if it is caused by something the builder did or failed to do.
It’s worth noting that these insurance policies are limited to problems caused by the building work carried out by your developer. These policies are not the same as the buildings insurance that cover disasters such as flood, fire or subsidence.
What is needed prior to the exchange of contracts?
Your conveyancing solicitor will draft a contract of sale for you. This contract may have some conditions contained within it, which should ensure that you receive the agreed standard of property upon completion.
One example of other important issues which can be agreed upon within the contract, is rights such as easements attaching to the property.
Your solicitor must ensure that these rights include; a right of way over estate roads, a right to drainage, sewerage and water and a right to use all pipes and cables for utility services.
Click here to find out more about the conveyancing process timeline
The new build conveyancing process –what additional documentation or information is required?
In addition to the Energy Performance Certificate and other normal conveyancing documentation, your solicitor will also need to obtain the following:
- Planning permission – your solicitor will double check that planning has been granted for your particular property and that any conditions of the grant are being kept to by the developer.
- Estate roads – you will need appropriate access to the property and do not want to be paying towards any maintenance of any access road. Your solicitor will need to check that an s.38 (Highways Act 1980) agreement has been entered into between the developer and the local authority. This agreement confirms that the estate roads are the responsibility of the developer until they become publicly maintained (adopted) by the council. Default of this agreement should be insured against by the developer.
- Building regulations consents – your solicitor will need to check that appropriate building regulations were obtained by the developer. Building regulations provide a set of standards for the construction industry to stick to regarding the use of certain materials and the methods employed to ensure that the construction of new properties is done at a good standard. The local authority has an unlimited retrospective time period to enforce building regulations and there can be hefty fines involved if the consents were not obtained.
- Structural guarantee – as a precaution, a structural guarantee should be obtained from the developer and/or building contractors. This ensures that in the event of a structural fault (becoming clear after you buy the property) you are able to get compensation. A guarantee of this type may be requested by your mortgage company as a condition to the loan. A structural defect does not just cover the external mistakes , but also internal problems such as bad plasterwork and decoration.
- Easements –this is the legal term for rights of way over land. The purchase contract should provide for all the necessary easements (rights belonging to the property) including; a right of way over the estate roads until adopted by the local council, a right to drainage, sewerage and water and a right to use all pipes and cables for utility services.
Click here to read more about rights of way
Buying off-plan – the advantages and disadvantages?
When you buy off-plan it means you are committing to buying a property before it has been built, although completion of your purchase is delayed. There are several advantages and disadvantages to buying off-plan, including:
House prices may rise whilst the house is being built. This means that you could quickly sell the property for a profit.
The market may fall, leaving you in negative equity and/or with a property you don’t want.
You will be able to have the property modified, for example moving a wall or adding on in as these decisions can be made before the first brick is laid.
The developer may go bust. To protect your interests, make sure the developer insures your deposit.
You can pick your fittings and fixtures such as your kitchen and bathroom.
It can be harder to secure a mortgage offer, meaning you may have to pay a higher interest rate or have a bigger deposit.
What happens if my new build property is not ready on time?
Unfortunately, there is always a chance that your new build home will not be completed on time. In fact, research by New Homes Review found that over 40% of new-build homes aren’t ready by the original deadline. This is not because builders take a tea break every hour and knock off at 4pm. On the contrary, developers will put significant pressure on builders to meet agreed deadlines because they are eager to collect the profits from the development. This is another reason for investing in a snagging survey – the more rushed the project is, the greater the likelihood of construction problems occurring.
There are several undesirable consequences of completion of your new build being delayed, including:
· A typical mortgage offer is for three to six months only. If your original offer expires, your application will need to be reassessed if you cannot negotiate an extension.
· You may have to pay compensation to the buyers of your existing home if you are unable to leave your home on completion day.
· If you are renting or paying a mortgage on your existing property, you may end up paying two sets of accommodation costs.
Buried in the small print of your contract will be a reference to a ‘long-stop date’. This is the latest date the property can be completed. You will not be able to get your deposit back before this date passes.
If completion on your new build is running late, having a great Conveyancing Solicitor is vital. They will ensure your mortgage lender and anyone else who needs to know is informed of the delay. They may be able to have your mortgage offer extended and negotiate with the buyers of your existing home to delay the completion date.
Do I need a survey?
A full structural or building survey is not normally necessary when buying new build property. If there are any problems, you should be covered by the new building insurance policy.
Why should I invest in a snagging survey?
These special type of surveys are unique to new build property – they should identify any relatively minor problems which need fixing before you move in. Even if you live over the fence from your new build and can see every brick being laid, you must get a snagging survey done.
A snagging survey is a visual inspection carried out by a professional surveyor who will identify any defects which must be fixed by the developer, ideally before you move in.
The kind of issue that your professional snagging survey should pick up include minor issues like an ill fitting door and on rare occasions, they can even it up on something more serious.
The developer may tell you that a snagging survey is not required because your home will be covered by an NHBC warranty. Politely smile and organise a survey regardless. It can be extremely difficult to claim under an NHBC warranty, especially after two years when the warranty will only cover major structural issues. If you discover that all your windows leak because they have not been sealed properly, after two years, you will be footing the bill to have them fixed.
If you are investing hundreds of thousands of pounds into a home, a few hundred more for the peace of mind a snagging survey provides is well worth the investment.
What is a covenant?
If you buy a new build home you will likely have to abide by certain covenants. A covenant is a promise contained in the title that the owner will or will not do something. For example, there may be a covenant stating you cannot keep chickens on your property or paint the exterior a colour that does not match the other houses on the estate.
Covenants can also be positive, for example, you make a legal promise to keep your garden tidy.
The difference between a positive covenant and a negative covenant is the former does not run with the land, and therefore will not bind the purchaser should you sell your home in the future. Negative covenants stay with the land and therefore all subsequent buyers will be bound by them.
Will I pay stamp duty on an off-plan property?
Yes, stamp duty will be calculated on the property’s purchase price.
Can I sell an off-plan property before it is completed?
Yes, this is known as flipping. The advantage of selling before completion is that you can make money if the value of the property increases. For example, let’s say you paid a £20,000 deposit on a £200,000 new build which would be completed in 12 months. During the period the property was being built, the market value of the house increases to £240,000. You could sell your contract to purchase the property for £40,000, giving you a profit of £20,000 and you would not have to pay stamp duty. However, if you speculate incorrectly and the property market stays flat or even worse, drops, you will be left with a house you do not want or cannot afford.
NB Flipping in this way is only possible if the contract allows you to assign the benefit of it. If not you cannot assign or sell on yourself – you would have to complete the current purchase before selling on.
Is it harder to get a mortgage on a new build?
Lenders may require a higher loan to value for a new build as many believe that you will be paying a premium and the value of the home will drop as soon as you move in. Another factor that increases the lender’s risk is that it can be a tough sell to convince someone to buy your nearly new home if the developer is still constructing sparkling new properties on your development. And finally, the 28 days between reservation and exchange of contracts can be tight for lenders; therefore, it is always wise to obtain a mortgage in principle if you plan to purchase a newly built home.
When applying for a new build mortgage, be prepared to pay a 15% deposit for a house and 25% for a flat.
Can I pull out of conveyancing after exchanging on a new build property?
The situation with new builds is no different from any other conveyancing. As soon as you exchange contracts, both you and the seller are legally committed to completing purchase.
So yes you can pull out – but pulling out is a breach of contract and there are serious financial consequences.
In particular if you pull out of a new build purchase after exchanging contracts, the developer can serve a notice which requires you to complete the purchase within 10 days. And failing to complete allows the developer to sue you – it’s likely that you will forfeit your entire deposit and could also be liable to pay the developer interest on outstanding funds needed for completion, as well as potentially paying them for any other losses they incur, which can include any additional legal fees they incur as a result of you pulling out of the purchase.